Motor Industries Co. Ltd. vs M/S. Capital Fuel Injection ...
2012 Latest Caselaw 5974 Del

*              IN THE HIGH COURT OF DELHI AT NEW DELHI

+                           CS(OS) No.313/1999

%                                                   5th October, 2012

MOTOR INDUSTRIES CO. LTD.                                 ...... Plaintiff
                  Through:               Mr. Vibhu Bakhru, Senior Advocate
                                         with Mr. Chetan Chopra, Advocate
                                         and Ms. Saba Grover, Advocate.

                            VERSUS

M/S. CAPITAL FUEL INJECTION ENGINEERS PVT.LTD. & ORS.
                                              ...... Defendants
                    Through: Ms. Sumati Anand, Advocate.



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

    To be referred to the Reporter or not?


VALMIKI J. MEHTA, J (ORAL)

1.

The subject suit has been filed by the plaintiff against the

defendants for recovery of Rs. 51,79,210.85/- being the price of the

goods/spark plugs sold to the defendant No.1. Out of the total amount

claimed, the principal amount is Rs. 47,38,564.57. Balance claim is towards

interest @ 24% per annum. The suit is filed against four defendants.

Defendant No.1-company is the buyer. Defendant Nos.2 and 3 are stated to

be Directors of the defendant No.1-company. Defendant No.4 is the sole

proprietorship concern of the defendant No.2 to whom the goods are said to

be transferred by the defendant No.1.

2. The facts as stated in the plaint are that earlier the plaintiff had

appointed as its distributor the partnership firm of Mr. B.M. Sethi and Mr.

Vineet Sethi. Subsequently, this partnership firm was incorporated as a

private limited company M/s. Capital Fuel Injection Engineers Pvt.

Ltd(=defendant No.1). Ownership of the company came to be vested with

Mr. B.M. Sethi who held 51% shareholding of the company and Mr. Prabhu

Kumar Khatpal/defendant No.2 who held 49% shares in the company.

Thereafter, the shareholding of Mr. B.M. Sethi stood transferred to Mr.

Prabhu Kumar Khatpal/defendant No.2. The entire shareholding of the

defendant No.1-company thereafter came to be held by defendant Nos.2 and

3, and then defendant No.1-company was again reappointed as a distributor

vide plaintiff‟s letter dated 6.12.1995. The invoices which are the subject

matter of the suit are stated in para 5 of the plaint as under:-

DELIVERY        DATE                                     AMOUNT (`)
CHALLAN/INVOICE
NO.
30006789        19.08.98                                 57424.00
30006790        19.08.98                                 65443.20

 30006792                     19.08.98                   2737.60
30006793                     19.08.98                   4560.00
30006794                     19.08.98                   10496.00
30006850                     20.08.98                   24000.00
30006849                     20.08.98                   48000.00
30006926                     24.08.98                   1843.20
30006927                     24.08.98                   8480.00
30006955                     24.08.98                   24000.00
30006956                     24.08.98                   24000.00
30006984                     26.08.98                   24000.00
30007311                     31.08.98                   2120.00
30007312                     31.08.98                   760.00
30007314                     31.08.98                   6836.00
30007315                     31.08.98                   20904.00
30007316                     31.08.98                   192.00

30007318                     31.08.98                   22976.00
30007319                     31.08.98                   41052.80
30007320                     31.08.98                   5072.00
30007321                     31.08.98                   624.00
30007423                     31.08.98                   341200.00
30007424                     31.08.98                   10080.00
30007425                     31.08.98                   3438936.00
30007426                     31.08.98                   556000.00
                             TOTAL                      ` 47,42,216.80/-

Further, the case of the plaintiff is that defendant No.1 is only a

paper company and therefore defendant Nos.2 and 3 are personally liable.

Liability of the defendant No.4 is alleged on the ground that defendant No.1

transferred the goods purchased by it to the said defendant No.4

proprietorship concern of the defendant No.2.

3. Defendants have contested the suit. Liabilities of defendant

Nos.2 and 3 are denied on the ground that they are only Directors of the

company and therefore they have no liabilities of the company which is a

separate entity. So far as defendant No.4 is concerned, the liability of the

said concern was denied on the ground that it was a separate sole

proprietorship concern of the defendant No.2, and which therefore cannot be

fastened with the liability of the defendant No.1. Defendants claimed in the

written statement that value of the goods supplied by the plaintiff was not of

` 47,42,216.80/- but only of ` 2,43,888/-.

4. The following issues were framed in this suit on 17.1.2003:-

"1. Whether the suit is bad for misjoinder of parties i.e. defendants No.2 to 4 and the plaintiff has no cause of action against them?

2. Whether the plaintiff supplied the goods in question to the defendant No.1 covered by invoice No.30007316 to 30007426?

3. Whether defendants No.2 to 4 had diverted the goods and had misappropriated the same thereby rendering the company, defendant No.1, a defunct and fundless? If so, its effects.

4. Whether the plaintiff is entitled to the suit amount or any other amount?

5. Whether on the facts and circumstances of the case the corporate veil of defendant No.1 is liable to be lifted and to what consequence?

6. Whether the plaint has been signed, verified and the suit instituted by a duly authorised person and plaintiff is entitled to any rebate?"

Issue No.6

5. This issue is not pressed on behalf of the defendants and is

therefore decided in favour of the plaintiff by holding that suit is properly

instituted. There is an additional aspect in this issue of defendants‟

entitlement to rebate, but, there is a typographical mistake as the expression

used is „plaintiff‟ instead of „defendants‟. This rebate aspect of issue No.6

will be dealt with by me while deciding issue No.2.

6. So far as these issues are concerned, I am inclined to hold the

same in favour of defendant Nos.2 to 4 inasmuch as the liability of a

company is always separate from the liabilities of its Directors and

shareholders. Admittedly, defendant Nos.2 and 3 have not executed any

documents making themselves liable towards the plaintiff for the liability of

the defendant No.1. I do not find any ground to lift the corporate veil of the

defendant No.1 in the present case inasmuch as there is nothing on record

that the defendant No.1-company was only a sham/paper company. The fact

that plaintiff has done business with the defendant No.1-company by

appointing the defendant No.1-company as a distributor shows that

defendant No.1-company was very much in existence for the purpose of

business and it was not a paper company so that the corporate veil can be

lifted to fasten the liability upon the defendant Nos.2 and 3. If in any and

every case corporate veil has to be lifted then in every case the

shareholders/directors of a company will become personally liable, more so

in small private companies. In the facts of the present case no factual

foundation exists for applicability of the doctrine of lifting of corporate veil.

So far as the issue of liability of defendant No.4 is concerned, admittedly it

is only a sole proprietorship concern of the defendant No.2 and which had

no personal dealings with the plaintiff. Even if we take the case of the

plaintiff at best the same is that goods were transferred by the defendant

No.1 to the defendant No.4, but admittedly there is no privity of contract

between the defendant No.4 and the plaintiff so as to make defendant No.4

liable to the plaintiff. Once the liability of the defendant No.1 is established

as a buyer of goods, if the goods are transferred, thereafter, by the

buyer/defendant No.1 to other persons including defendant No.4 such

persons cannot be legally liable to the plaintiff.

These issues are answered against the plaintiff and it is held that

no decree can be passed against the defendant Nos.2 to 4 and no liability of

the defendant No.1 can be fastened on the defendant Nos.2 to 4.

7. The plaintiff has proved on record the invoices by which the

goods were supplied to the defendants. These invoices are Ex.PW1/6(colly).

These invoices are the invoices which have been detailed in para 5 of the

plaint. The plaintiff has also filed and proved on record its outbound stock

register as Ex.PW1/7 and which bears the signatures at various places of one

Sh. Puran Singh of the defendant No.1. Though the defendants have denied

that they have received the goods through the said Sh. Puran Singh, the

cross-examination of witness of defendants DW-1 Sh. Prabhu Kumar

Kathpal on 17.4.2006 and 18.12.2006 shows that Sh. Puran Singh was an

employee of the defendants; Sh. Puran Singh was a driver employed by the

defendants duly shown in the muster roll; and it is admitted that in majority

of the occasions Sh. Puran Singh used to visit the premises of the plaintiff

for the purpose of taking the goods. In my opinion therefore, these

admissions in cross-examination alongwith proving of the invoices and stock

register shows that the disputed goods which are stated in para 5 of the plaint

were in fact sold and supplied to the defendant No.1, and for which amounts

of the total invoices the defendant No.1 is liable.

8. In my opinion, the supply of the goods in question to the

defendant No.1 is also proved from the fact that if really the defendant No.1

would not have received these goods, it was very easy for the defendant

No.1; which is a limited company and whose accounts are audited; to have

filed its stock register to show that in fact these stock registers did not reflect

the goods which the plaintiff has proved to have been sold to the defendant

No.1. Since the defendant No.1 has not filed its stock register, I draw an

adverse inference against the defendant No.1. This is therefore additional

reason to hold that the plaintiff supplied goods of the value of `

47,42,216.80/- to the defendant No.1.

So far as the issue of rebate is concerned, I have not found any

credible evidence much less credible documentary evidence on record which

proves the same and therefore the defendant No.1 is held not entitled to any

rebate.

Issue No.2 is therefore decided in favour of the plaintiff and

against the defendants.

9. There is now the related issue as to whether the plaintiff is

entitled to interest @ 24% per annum simple as claimed in the plaint

inasmuch as out of the total suit amount of ` 51,79,210.85/- only an amount

of ` 47,42,216.80/- is the principal amount.

10. In my opinion, interest @ 24% per annum is indeed exorbitant.

The Supreme Court in the recent chain of judgments reported as Rajendra

Construction Co. v. Maharashtra Housing & Area Development Authority

and others, 2005 (6) SCC 678, McDermott International Inc. v. Burn

Standard Co. Ltd. and others, 2006 (11) SCC 181, Rajasthan State Road

Transport Corporation v. Indag Rubber Ltd., (2006) 7 SCC 700, Krishna

Bhagya Jala Nigam Ltd. v. G.Harischandra, 2007 (2) SCC 720 & State of

Rajasthan Vs. Ferro Concrete Construction Pvt. Ltd (2009) 3 Arb. LR 140

(SC) has held that the Courts must not grant high rates of interest in view of

the changed economic scenario where the rates of interest have fallen. A

Division Bench of this Court in the case of Pandit Munshi Ram Associates

vs. DDA 2010 (9) AD (Delhi) 313 has held that high rates of interest can

also be challenged on the ground of public policy.

11. Accordingly, I am of the opinion that interest @ 9% per annum

simple will meet the ends of justice in the facts of the present case. Plaintiff

is awarded pre suit interest @ 9% per annum simple, the transaction being

commercial transaction between the parties, and which rate of interest will

be payable from 1.9.1998 till the date of filing of the suit. Plaintiff will also

be entitled to pendente lite and future interest at the same rate of 9% per

annum simple till payment by the defendant No.1 to the plaintiff.

Relief

12. The suit of the plaintiff is therefore decreed against defendant

No.1 for a sum of ` 47,42,216.80/- alongwith interest @ 9% per annum

simple from 1.9.1998 till the date of filing of the suit. Plaintiff will also be

entitled to pendente lite and future interest at the same rate of 9% per annum

simple till payment. Parties are left to bear their own costs. Decree sheet be

prepared. It is clarified that since the defendant No.1 has paid an amount of

` 10.12 lacs to the plaintiff during the pendency of the suit, when the

calculations will be made for payment under the present judgment and

decree, the defendant No.1 will be entitled to credit of this amount of `

10.12 lacs.

VALMIKI J. MEHTA, J OCTOBER 05, 2012 Ne