Bal Ram Mehta vs Royal Hindustan Ltd And Anr
2011 Latest Caselaw 5614 Del

45
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*       IN THE HIGH COURT OF DELHI AT NEW DELHI

+       CS(OS) 1317/2011

%                                             21st November, 2011

BAL RAM MEHTA                                            ..... Plaintiff
                              Through:   Mr.Mohit Chaudhary, Mr.Dheeraj
                                         Gupta, Ms.Rashi Bansal and Mr.
                                         A.Das, Advs.
                     versus

ROYAL HINDUSTAN LTD AND ANR              ..... Defendant
                 Through: Mr.R.M.Bagai, Adv.

        CORAM:
        HON'BLE MR. JUSTICE G.S.SISTANI

G.S.SISTANI, J (ORAL)

I.A. No. 12511/2011 (leave to defend) & I.A. No.11160/2011 (summons
for judgment)

     1. This is an application filed by the defendants under Order XXXVII
        Rule 3(5) CPC seeking leave to defend as the defendant has raised
        various triable issues.
     2. The plaintiff has instituted the present suit under the provisions of
        Order 37 of the Code of Civil Procedure, for recovery of
        Rs.1,24,02,752/- together with interest @ 18% p.a.
     3. Mr.Chaudhary, learned counsel for the plaintiff, submits that the
        present suit is based on a cheque in the sum of Rs.1,24,02,752/-
        which was handed over by defendant No.2 to the plaintiff and the
        same stands returned unpaid by the banker of the defendant on the
CS(OS) 1317/2011                                             Page 1 of 14
        ground that the account is lying dormant.
   4. It is contended that the suit is also based on two memorandum of
       understandings signed and executed between the parties which have
       not been disputed by the defendant. Learned counsel relies on
       memorandum of understanding dated 28th July, 2007 and
       memorandum      of   understanding    dated      23rd    January,      2008.
       Mr.Chaudary submits that Defendant No.1 is a company, defendant
       No.2 is running the same more like a proprietorship concern.
       Counsel further states that the parties are neighbours and have been
       residing in close vicinity for the last over twenty years and share a
       cordial and healthy relationship.    It is further submitted that the
       defendant No.2 represented himself to be 100% shareholder and
       Director along with one Shri Vikas Goyal and Smt. Ritu Goyal of
       defendant no.1/company. Defendant No.1 is stated to be involved in
       the business of manufacturing of detergents/washing powder/soap
       cakes. The manufacturing unit of the company is situated at B-5,
       Industrial Area, Kosi Kalan, District Mathura.
   5. It is submitted that defendant No.2 had informed the plaintiff that his
       company was not operating at the optimum level due to shortage of
       funds and he requested the plaintiff to provide financial assistance to
       the tune of Rs.60,00,000/-. In order to secure the said loan amount,
       defendant No.2 along with Shri Vikas Goyal and Smt. Ritu Goyal
       promised and assured the plaintiff that he would be appointed as one
       of the Directors on Board in addition to transferring 50% of the
       shareholding in his name. Counsel further submits that plaintiff was
       informed that the company had various immovable properties

CS(OS) 1317/2011                                               Page 2 of 14
        including B-4, Industrial Area, Kosi Kalan, District Mathura (U.P.)
       as well as other properties in Tehsil-Chatta, District Mathura (U.P.).
       Initially the plaintiff was apprehensive of lending such a huge sum to
       the defendant, however, Sh.Rajan Goel who at that time working as
       Secretary of Shri.Sanatan Dharam Sabha, approached the plaintiff
       through Pandit Sh.Bhagwat Dayal (Pandit of Shri.Radha Krishan
       Mandir, Kailash Hills, East of Kailash, being under the care and
       management of Shri Sanatan Dharam Sabha) and induced the
       plaintiff to provide the financial assistane. The plaintiff is also stated
       to be a member of Santan Dharma Sabha. The parties under these
       circumstances signed the first memorandum of understanding and the
       plaintiff issued two demand drafts in the sum of Rs.7,30,000/- and
       Rs.3,45,000/- respectively on 20th April, 2007. Another sum of Rs.2
       lacs was transferred on 1st May, 2007.         Thus, the total sum of
       Rs.12,75,000/- was transferred to defendant No.2 as a loan. During
       the period April to July 2007, the plaintiff transferred another sum of
       Rs.13,25,000/- in cash which was deposited in the account of M/s.
       Royal Hindustan Ltd. At that stage, the plaintiff realized that Shri
       Rajan Goel was diverting the inflow of funds to other banks, namely,
       ICICI Bank and Union Bank, without bringing this fact to the
       knowledge of the plaintiff. To sourt out the matter a meeting was
       called in the presence of Shri S.N.Aggarwal, a common friend of the
       parties, and the matter was mutually resolved.
   6. Thereafter the plaintiff further paid a sum of Rs.60 lacs in addition to
       the amount already paid to the defendants. The plaintiff was then
       appointed as a Director along with his nephew, one Shri Tushar

CS(OS) 1317/2011                                             Page 3 of 14
        Mehta. It was agreed between the parties that the plaintiff would be
       paid a sum of Rs.25,000/- per month. Plaintiff has given details of
       the amounts paid to defendant No.2.
   7. In latter days of August, 2007, realizing that Mr.Rajan Goel did not
       honour his commitments and did not keep his words and further that
       no shareholding was transferred to secure the payments and neither
       any Board meeting was ever called for, the plaintiff and his nephew
       raised their concerns. At that stage, the plaintiff demanded his money
       back from Mr.Rajan Goel, M/s Royal Hindustan Limited. To get the
       money back plaintiff followed up the matter with the defendant and
       also exerted pressure through common friends. Although defendant
       no.2 gave false commitments and never honoured his words,
       however, defendant no.2 duly acknowledged the receipts of
       payments made by the plaintiff and also promised and assured that he
       would repay the same by the end of December, 2007, along with
       interest @18% p.a.
   8. The plaintiff thereafter called upon the defendant to repay the
       amounts which were not paid, however, with the intervention of Shri
       S.N.Aggarwal, the matter was not precipitated further and in January
       2008, the defendant No.2 came to the house of the plaintiff and
       apologized to the plaintiff for his past conduct and agreed to pay the
       outstanding amount with interest @ 18% p.a.. This led to the signing
       of another memorandum of understanding on 23 rd January, 2008. A
       further sum of Rs.20,92,215/- was paid by the plaintiff in January,
       2008 to defendant No.2 vide cheques.     Between February, 2008 to
       June, 2008, plaintiff paid another sum of Rs.6,13,250/- and

CS(OS) 1317/2011                                          Page 4 of 14
        Rs.2,34,175/-.
              Subsequently, the plaintiff orally and by SMS called upon the
       defendant to repay the amounts to the plaintiff in the total sum of
       Rs.65,29,000/-. Plaintiff also wrote letter dated 31st December, 2008
       requesting the defendants to pay the entire sum along with interest.
   9. It is submitted that all efforts made to recover this amount did not
       bear any fruit which led to issuing of a legal notice dated 5 th April,
       2011 wherein it was mentioned that the plaintiff had been cheated in
       a sum of Rs.65,29,000/-. As the plaintiff did not receive any amount,
       the plaintiff has filed the present suit on the basis that defendant No.2
       in order to discharge his liability to pay the entire debt handed over a
       cheque bearing No.204864 duly signed and stamped in the sum of
       Rs.1,24,02,752/- drawn on Punjab National Bank with an assurance
       that the same shall be honoured on presentation.
   10.Counsel for the plaintiff submits that this cheque was issued after the
       plaintiff had filed the police complaint. The aforesaid cheque was
       dishonoured      with   the   endorsements     that   the    account   is
       inoperative/dormant. It is the submission of learned counsel for the
       plaintiff that based on the memorandum of understandings executed
       between the parties, the plaintiff had granted loan in the total sum of
       Rs.65,29,000/- to the plaintiff.       As per the memorandum of
       understanding the amounts paid were to be treated as a personal loan.
       Further, by the first memorandum of understanding, the plaintiff had
       an option to pull out from the arrangement within the first six
       months. By the second memorandum of understanding, the option to
       pull out and withdraw from the understanding was within a period of

CS(OS) 1317/2011                                             Page 5 of 14
        one year of signing of the second memorandum of understanding.
       Counsel for the plaintiff has also relied upon Clause 5 of the
       Memorandum of Understanding dated 23.1.2008 in support of his
       arguments that he had an option to withdraw his share of funds/loan
       with 18% interest.
   11.Learned counsel appearing on behalf of the defendant submits that
       the present suit is not maintainable under the provisions of Order 37
       of the Code of Civil Procedure as there is no liquidated debt as
       defined under the provisions of Order 37 of the Code of Civil
       Procedure. It is submitted that the memorandum of understandings
       were in fact in the form of a partnership/arrangement between the
       parties. There was a clear understanding between the parties that the
       plaintiff would be nominated as a Director and he would look after
       day today business. He was also given the authority to sign cheques
       which is not disputed. In fact, any cheque less than Rs.25,000/-
       could be signed by the plaintiff and cheques for over Rs.25,000/-
       were to be signed jointly by the parties. As per the understanding
       arrived at between them, the plaintiff was to look after the marketing
       business at Delhi while the defendant concentrated at the factory
       which was situated near Mathura at a distance of over 100 kms. It is
       contended that defendant No.2 signed blank cheques in good faith to
       enable the plaintiff to carry out day today business as it was not
       possible for defendant No.2 to come to Delhi office regularly as he
       had to travel more than 200 kms in a day. Having regard to the
       relationship, parties being the neighbours, the defendant reposed trust
       and faith in the plaintiff and handed over the blank signed cheques.

CS(OS) 1317/2011                                           Page 6 of 14
        It is submitted that as per the plaintiff, the cheque in question was
       issued after the lodging of the police complaint in the month of April,
       2011. Whereas documents placed on record including the statement
       of account would show that the leaf of this cheque has been taken
       from the cheque book which was issued in the year 2008 and in fact
       relying on the certificate issued by the Punjab National Bank, the
       learned counsel submits that no cheque book was issued to this
       company after 23rd May, 2008.
   12.Mr.Bagai, learned counsel for the defendants submits that the
       financial details of business of the plaintiff was in the knowledge of
       the plaintiff as he was a Director of the company and he was well
       aware that this bank account had no funds and secondly the cheque
       would never be encashed on account of the mandate issued to the
       bank by both plaintiff and defendant that any cheque of over
       Rs.25,000/- cannot be encashed unless it is jointly signed by Shri
       Rajan Goel, defendant No.2 and Shri B.R.Mehta, the plaintiff. It is
       thus contended that the present suit under the provisions of Order 37
       of the Code of Civil Procedure is a gross abuse of the process of the
       Court. The plaintiff has set up a false case as borne out on the basis
       of documents and the same has been filed only with a view to harass
       and armtwist the defendant.      It is also contended by Mr.Bagai,
       learned counsel for the defendant that the defendants would be
       entitled to unconditional leave to defend as the cheque sought to be
       relied upon by the plaintiff is a nullity for which he relies on a
       judgment delivered by a Single Judge of this Court in Crl.L.P.
       No.136-139/2010 titled M/s. Mithi Interiors Pvt. Ltd. Vs. M/s.

CS(OS) 1317/2011                                           Page 7 of 14
        Esscon Engineers Pvt. Ltd. & Ors. more particularly, paragraphs
       10 and 11 which are reproduced below:-
           "10. Shri Vivek, Executive of UTI Bank(now Axis Bank)
           Pitam Pura Branch deposed on the basis of the record of the
           bank account maintained in the bank by respondent No.1

company. He deposed that as per the instructions of respondent No.1 company, mode of operation of its bank account was joint by two Directors of the company, namely respondent No.2 Shubhendu Shekhar and petitioner Mithilesh Jha. He further stated that on 31st March, 2005 petitioner Mithilesh Jha tendered his resignation as Director of the company and vide instructions letter dated 1st April,2005 of the respondent No. 1 company, the mode of operation of the bank account of respondent No.1 was changed inasmuch as that the petitioner Mithilesh Jha was replaced as a joint signatory for operation of bank account by respondent No.3 Mukta Awasthi. Admittedly, the purported cheques on the basis of which complaints have been filed by the petitioner are signed by only one of the joint signatories namely, respondent No.2 Mukta Awasthi. Since the aforesaid purported cheques do not bear the signatures of the second joint signatory, the aforesaid instruments do not qualify the definition of a valid cheque which could be acted upon by the bank in terms of the instructions regarding the mode of operation of the bank account. Thus, in my considered view, learned M.M. has rightly concluded that aforesaid instruments cannot be termed as validly drawn cheques and as such one of the most essential ingredients of offence under Section 138 N.I. Act is lacking in this case. Thus, he has rightly acquitted the respondents for the offence under Section 138 N.I. Act.

11. As regards the submission of learned counsel for the petitioner that the petitioner could not have known about internal arrangements about mode of operation of bank account of respondent No.1 company, it is suffice to say that if the respondents No.2 and 3 have induced the petitioner to accept the cheques signed by one of the joint signatories only

by misrepresenting and concealing the fact that valid cheques could be signed jointly by both the authorised signatories, the respondents may have committed an offence of cheating punishable under Section 420 IPC but by no means it can be said that they are guilty of offence under Section 138 N.I. Act.

13.Learned counsel for the plaintiff in support of his submissions has relied upon a decision reported in V.K.Enterprises & Anr. Vs. Shiva Steels, reported at (2010) 9 SCC Page 256, more particularly paragraphs 11 to 13, which are reproduced below:-

"11. What is required to be examined for grant of leave is whether the defence taken in the application under Order 37 Rule 3 CPC makes out a case, which if established, would be a plausible defence in a regular suit. In matters relating to dishonour of cheques, the aforesaid principle becomes more relevant as the cheques are issued normally for liquidation of dues which are admitted. In the instant case, the defence would have been plausible had it not been for the fact that the allegations relating to the interpolation of the cheque is without substance and the ledger accounts relating to other dues, clearly demonstrated that such dues had been settled between the parties. Moreover, the issuance of the cheque had never been disputed on behalf of the petitioner whose case was that the same had been given on account of security and not for presentation, but an attempt had been made to misuse the same by dishonest means.

12. Against such cogent evidence produced by the respondent-plaintiff, there is only an oral denial which is not supported by an corroborative evidence from the side of the petitioner. On the other hand, the ledger book maintained by the respondent and settled by the petitioner had been produced on behalf of the

respondent in order to prove the transactions in respect of which the cheque in question had been issued by the petitioner.

13. In our view, the defence raised by the petitioner does not make out any triable issue and the High Court has dealt with the matter correctly and has justifiably rejected the petitioner's application under Order 37 Rule 3 CPC and the same does not call for interference by this Court."

14. I have heard counsel for the parties. The principles for grant of leave to defend have been succinctly set out by the Apex Court in the case of Mechalec Engineers and Manufacturers v. Basic Equipment, reported at AIR 1977 SC 577. The same are reproduced below:-

"8. In Smt. Kiranmoyee Dassi and Anr. v. Dr. J. Chatterjee 49 C.W.N. 246 , Das. J.,after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by order 17 C.P.C. in the form of the following propositions (at p. 253) :

(a) If the Defendant satisfies the Court that he has a good defence 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 triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence 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 entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, 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 defence 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 defence or the defence 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 defence or the defence 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 defence 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 defence.

15. The facts of this case are to be appreciated on the touchstone of the judgment delivered by the Apex Court in the case of Mechalec Engineering and Manufacturing (supra). The parties are neighbours and for the smooth functioning of the business the defendants made investments in the business. Plaintiff and defendant no.2 also signed two Memorandum of Understandings dated 28.7.2007 and 23.1.2008. Pursuant to the signing of the Memorandum of Understanding plaintiff and his nephew were appointed as a Director of the company.

16. While considering an application for leave to defend the defendant

must satisfy the Court that he has a good defence to the claim on the merits, defendant must raise a triable issue indicating that he has a fair, bona fide or reasonable defence, although defence may not be a positively good defence. In case defendant is able to establish the same defendant would be entitled to unconditional leave to defend as per propositions (a) and (b) laid down by the Apex Court in Mechalec Engineering and Manufacturing (supra).

17. In the present case, the suit is based on a cheque bearing no.204864 in the sum of Rs.1,24,02,752/-. According to the plaintiff, this cheque was handed over by defendant no.2 to the plaintiff in discharge of his legal debts. It is also the case of the plaintiff that since defendant no.2 did not return the money despite repeated requests the plaintiff was forced to approach Police, however, defendant no.2 requested the plaintiff not to follow up his FIR and handed over the aforesaid cheque.

18. In the application for leave to defend the defence set up by defendants is that the money was invested by the plaintiff for running the business. Parties had arrived at an understanding by which the plaintiff was to look after the business at Delhi. A joint account was opened and instructions were given to the bank that any cheque over a sum of Rs.25,000/- can only be encashed with the joint signatures of the plaintiff and defendant no.2. There is force in the submission made by learned counsel for the defendants that defendants could not have handed over the cheque to the plaintiff in discharge of his liabilities as admittedly the same would only be encahsed in case it had the signature of both the parties and secondly since the plaintiff

was also jointly carrying on the business he would be aware of such a condition. More so the defendant has placed reliance on a certificate issued from the bank that no cheque was issued to the company after 23.5.2008, which prima facie would show that the cheque, sought to be relied upon, was a signed cheque in the possession of the plaintiff, which was filled up by the plaintiff and on the basis of which the present suit has been filed. In my view, this raises a triable issue, which would require evidence in the matter. The defence raised is not moonshine or sham. Another factor, which is to be considered, is that the legal notice issued by the plaintiff to the defendants, by which the plaintiff claimed Rs.65.29 lakhs. Similar amount was claimed by the plaintiff before the Police. There is no explanation as to how by the time the suit was filed the amount increased to over Rs.1.25 cores. In my view this is a fit case for grant of unconditional leave to defend. Accordingly, I.A. 12511/2011 for leave to defend is allowed. I.A.11160/2011 for summons of judgment is disposed of. Needless to say that this is only a prima facie view in the matter and it is not an expression on the merits of the matter. CS(OS) 1317/2011 & I.A.8769/2011 (STAY)

19. Let written statement and reply to the application be filed within thirty days from today; replication and rejoinder be filed within thirty days thereafter; and documents shall be filed by the parties within the same period.

20. List before the Joint Registrar for admission/denial of documents on 10th January, 2012.

21. List before Court for hearing of application and framing of issues on 20th March, 2012.

G.S.SISTANI,J NOVEMBER 21, 2011 vg