M/S Sangeeta Jewels Pvt. Ltd. & ... vs Sh. Ajay Kumar Jain
2012 Latest Caselaw 2873 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+                              RFA No.390/2004

%                                                           1st May, 2012

         M/S SANGEETA JEWELS PVT. LTD. & ORS.      ..... Appellants
                       Through: Mr. Sudhir K. Makkar, Adv.

                      versus


         SH. AJAY KUMAR JAIN                                 ..... Respondent

                      Through:           none.


CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA

    To be referred to the Reporter or not?


VALMIKI J. MEHTA, J (ORAL)

1. The challenge by means of this Regular First Appeal filed

under Section 96 of the Code of Civil Procedure, 1908 (CPC) is to the

impugned judgment of the Trial Court dated 23.1.2001 decreeing the suit of

the respondent/plaintiff filed under Order 37 CPC on a dishonoured cheque

by dismissing the leave to defend application. It was pleaded by the

respondent/plaintiff that the dishonoured cheque of `3,00,000/- was

towards the repayment of a cash loan which was granted to the

appellants/defendants.

2. The facts of the case are that the respondent/plaintiff pleaded

that he gave a loan totalling to `3,00,000/- to the appellants/defendants in

three parts, i.e. `1,00,000/- on 3.10.1994, `1,00,000/- on 8.10.1994 and a

further sum of `1,00,000/- on 12.10.1994. The loan was given in cash, and

the appellants/defendants had issued receipts for the same. It was pleaded

that the receipts were given back by the respondent/plaintiff to the

appellants/defendants when the defendant no.2/appellant no.2 issued and

gave to the respondent/plaintiff a cheque for `3,00,000/- bearing no.903586

dated 12.11.1995 in discharge of the loan. It was pleaded that in addition

to giving the cheque towards the loan amount, the defendant no.2 also paid

a sum of `5,100/- in cash towards interest. The subject cheque for

`3,00,000/- was dishonoured and when the respondent/plaintiff called upon

the appellants/defendants to make payment, the appellants no. 2 and 3,

husband and wife, who owned the appellant no.1/defendant no.1-company

informed the respondent/plaintiff that they were going to convert the

appellant no.1/defendant no.1-company into a public limited company and

would be collecting huge amount of money by selling of the shares of the

company and at which time the loan amount would be paid back.

However, neither the defendant no.1/appellant no.1-company was

converted into public limited company nor was the amount of `3,00,000/-

paid, forcing the respondent/plaintiff to serve a legal notice dated 1.11.1997

calling for payment of the amount alongwith interest at 18% per annum.

No reply was given to this legal notice and therefore the subject suit was

filed for recovery of the principal amount of loan alongwith interest at 18%

per annum.

3. The appellants/defendants entered appearance and thereafter

filed a leave to defend application which has been dismissed by the

impugned judgment.

4. The appellants/defendants denied that there was any

transaction of the loans between the parties. It is pleaded that the cheque

was given because the respondent/plaintiff said that he would arrange the

services of a corporate consultant for the appellant no.1/defendant no.1-

company who would obtain clearances on its behalf for taking out public

issue of shares in the market. Since the respondent/plaintiff failed to

arrange the services of the corporate consultant as promised, the cheque

had been wrongly presented.

5. Trial Court has dismissed the leave to defend application by

making the following pertinent observations:

"As has already been noticed hereinabove, defendant NO.2, Sh. Vipin Sehgal, has not denied that the cheque in question dated 10.12.94 was executed by him. The only explanation that he has given for his having issue the cheque is that the plaintiff held out a promise to defend No.1 that he would engage for it the services of some

corporate consultant and obtain all clearances on its behalf to enable it to take out public issue of its shares in the market. The explanation given does not inspire confidence. The reasons are three fold. Firstly, there is nothing in writing between the parties about such dealing. Secondly, assuming the whole dealing between them was oral, it is difficult to believe that even after the plaintiff failed to arrange consultancy services the defendants made no protest to him either oral or in writing. There is no averment in the application for leave to defend that any protest whatsoever was made. Thirdly, if the defendants had really issued the cheque of Rs.3 lacs for obtaining consultancy services, it is inconceivable that on the failure of the plaintiff to arrange for the same they accepted such lapse on his part without demur. If nothing more, the defendants could at least have written to the plaintiff to return them the cheque dated 12.11.94 or would have asked him not to present the same for encashment on account of his failure to perform his obligation. The defendants chose to keep quiet and did not even respond to the legal notice of the plaintiff dated 1.11.97 which was sent almost three years after the cheque was issued. The silence on the part of the defendants was unbusiness like. It is only for the first time in the suit that the defendants have set up the defence that the cheque was issued without consideration. It is, too late in the day to raise any such plea. The defendants that all the opportunities and all the time at their disposal to write to the plaintiff that he had backed out from its promise to arrange consultancy services, and as such, the cheque issued by defendant no.2 was no longer valid for payment." (underlining added).

6. I completely agree with the reasoning given by the Trial

Court, inasmuch as firstly, a cheque which is issued is always ordinarily

issued for consideration and for which there is a presumption of

consideration for issuing of the cheque vide Section 118(a) of the

Negotiable Instruments Act, 1881. The presumption of the cheque not

being issued for consideration could have been rebutted if the

appellants/defendants would have shown that there was in fact an

agreement whereby the respondent/plaintiff was to provide the services of a

corporate consultant and which the appellants failed to do. The Trial Court

has held that the defence is moonshine inasmuch as admittedly there was

no written agreement qua the story of appointment of corporate consultant,

and it was difficult to believe that the appellants/defendants did not protest

in writing to the respondent/plaintiff even after the services of a corporate

consultant were not provided. Trial Court rightly notes that if the services

of the corporate consultant were not provided by the respondent/plaintiff,

the least the appellants/defendants could have done was to ask for return of

the cheque and which admittedly was not done. Finally, and importantly,

the appellants/defendants chose to keep quite and did not even reply to the

legal notice of the respondent/plaintiff dated 1.11.1997. In my opinion,

therefore the defence of the appellants/defendants was moonshine and was

rightly rejected by the Trial Court by dismissing the leave to defend

application.

7. Learned counsel for the appellants/defendants contended that

the respondent/plaintiff had filed another suit for recovery of Rs.1,72,000/-,

an aspect which is mentioned by the Trial Court in the impugned judgment,

however, though the cheque which was the subject matter of the present

suit was already dishonoured when the other suit was filed, no mention was

made in the said suit with respect to the present dishonoured cheque of

Rs.3,00,000/- and therefore, it is urged that no amount was due under the

dishonoured cheque. I frankly fail to understand this argument inasmuch

as there is no requirement of law that if a suit is filed for recovery of an

amount due on a dishonoured cheque, and which is thus based on a

specific/particular cause of action, yet the respondent/plaintiff in the said

suit must necessarily mention each and every other cause of action of other

dishonoured cheques between the parties. Surely, this is not the legal

position and therefore I do not find any legal force in argument as urged on

behalf of the appellant.

8. The other issue which was urged on behalf of the

appellants/defendants was that the appellants no. 2 and 3 could not be made

liable for the dues of the appellant no.1/defendant no.1 who had issued a

cheque.

In this regard the Trial Court has observed that the appellant

no.1/defendant no.1-company is an alter ego of the appellants no. 2 and

3/defendants no.2 and 3, and on the corporate veil being lifted, it would

become clear that the corporate entity was used to defraud people and not

encourage trade and commerce. Trial Court has relied upon the judgment

of the Supreme Court in the case of Delhi Development Authority v.

Skiper Construction Company (P) Ltd. and another, AIR 1996 SC 2005

and made the following pertinent observations on this particular issue:

"The objection of the defendant that the suit is bad for mis-joinder of parties also has no basis. A perusal of the memo of parties shows that Sh.Vipin Sehgal who issued the cheque on behalf of defendant No.1 is none other than the husband of Smt. Sangeeta Sehgal who is defendant No.3 and in whose name defendant no.1 namely M/s Sangeeta Jewels Pvt. Ltd. is being run. It is apparent from this that the defendant no.1 company is a household- affair of defendants No. 2 & 3 and that defendant no.2 has been shown as Director of Defendant no.1 for name- sake only. In this context it will be appropriate to refer to a judgment of the Apex Court reported in AIR 1996 Supreme Court, page 2005, Delhi Development Authority vs. Skipper Construction Company Pvt. Ltd. It has been held in the aforementioned judgment that the concept of a corporate entity was evolved to encourage and promote trade and commerce but not to commit illegalities or defraud people. Where, therefore, the corporate character is employed for the purpose of committing illegality or defrauding others, the court would ignore the corporate character and will look at the reality behind the corporate veil so as to enable it to pass appropriate orders to do justice between the parties concerned.

It follows from the above judgment that a court is competent to pierce through the veil of a Private Limited Company to find out the true entities of the persons constituting the same. I have no manner of doubt that defendants no. 2 & 3 who are husband and wife formed

defendants no.1 company to run the same as a joint venture. Hence, I hold that all the three defendants are liable to pay the cheque amount of ` 3 lacs jointly and severally." (underlining added).

9. Though in law liability of a shareholder is different from

liability of a company, however, considering the facts of the present case

where the Trial Court has held that the appellant no.1/defendant no.1-

company is basically consisting only of the shareholders being appellants

no. 2 and 3/defendants no. 2 and 3, I do not find that the conclusion of the

Trial Court needs to be interfered with inasmuch as even in this appeal, the

appellants/defendants have not filed any details of the shareholding of the

appellant no.1/defendant no.1-company so as to dislodge the conclusion of

the Trial Court made in this regard.

10. To the conclusion of the Trial Court of lifting of the corporate

veil in the peculiar facts of the present case I may add that as per Section

70 of the Contract Act, 1872, and which provision deals with quasi contract

i.e. where there is no contract, it is provided that anyone who receives

benefits of monies, in fact must repay back those monies. Since the

shareholding pattern of the appellant no.1/defendant no.1 has not even been

filed before this Court, it is obvious that the cheque was issued by the

appellant no.1/defendant no.1, and, the benefit of the loan for which this

cheque was issued was in fact taken through the appellant no.1/defendant

no.1 by the appellants no. 2 and 3/defendants no.2 and 3. In the facts of the

present case therefore I do not find any need to interfere with the findings

of the Trial Court, inasmuch as, if I allow such a plea, it would amount to

using the corporate veil to defraud the creditors.

11. Finally, I put it to the counsel for the appellants/defendants as

to what was the result of the suit which was filed by the

respondent/plaintiff for recovery of `1,72,000/- and which was at the

relevant time pending before the Court of Smt. Manju Goel, ADJ, Delhi,

and to which query of the Court counsel for the appellants/defendants states

that he has no details at this time. In my opinion, this aspect is another

aspect which should go against the appellants/defendants and show their

malafides inasmuch as the impugned judgment has been passed almost 12

years back on 23.1.2001, and still the appellants/defendants have not filed

the result of the proceedings of the suit for `1,72,000/- filed by the

respondent/plaintiff against the appellants/defendants. My nagging doubt

is really that the said suit may have possibly been decreed against the

appellants/defendants and possibly, for that reason till date on the record

there is nothing to show what was the result of the said legal proceedings.

12. I may note that the Trial Court has been in fact unduly liberal

to the appellants/defendants who have done away with the monies of the

respondent/plaintiff by awarding interest only at 12% per annum pendente

lite and simple although as per the statutory mandate of Section 80 of the

Negotiable Instruments Act, 1881 once a cheque is dishonoured, interest at

18% per annum has to be granted on the amount of the dishonoured

cheque. In any case, I need not dilate on this aspect any further inasmuch

as the respondent/plaintiff has not filed any cross appeal in this regard.

13. In view of the above, I do not find any merit in the appeal

which is accordingly dismissed. Parties are left to bear their own costs.

VALMIKI J. MEHTA, J MAY 01, 2012 ak