Mashaian Di Hatti Ltd. vs Hotel Queen Road Pvt. Ltd.
2013 Latest Caselaw 3825 Del

        IN THE HIGH COURT OF DELHI AT NEW DELHI

                                CS (OS) 810 of 2012

                                               Reserved on: August 6, 2013
                                               Decision on: August 30, 2013

        MASHAIAN DI HATTI LTD                    ..... Plaintiff
                          Through: Mr. Kamal Sawhney and
                          Mr. Suraj Chaudhary, Advocates.

                                versus

        HOTEL QUEEN ROAD PVT. LTD.             ..... Defendant
                         Through: Mr. Jayant Bhushan, Senior
                         Advocate with Mr. Mohit Chaudhary
                         and Mr. Jayant K. Mehta, Advocates.
                             WITH
                        CS (OS) 811 of 2012

        PRERNA SINGH                                            ..... Plaintiff
                                         Through: Mr. Kamal Sawhney and
                                         Mr. Suraj Chaudhary, Advocates.
                                versus

        HOTEL QUEEN ROAD PVT. LTD.             ..... Defendant
                         Through: Mr. Jayant Bhushan, Senior
                         Advocate with Mr. Mohit Chaudhary
                         and Mr. Jayant K. Mehta, Advocates.
                             WITH
                        CS (OS) 812 of 2012

        SEEMA FAMILY TRUST                      ..... Plaintiff
                         Through: Mr. Kamal Sawhney and
                         Mr. Suraj Chaudhary, Advocates.

                                versus
CS(OS) Nos. 810, 811 and 812 of 2012                              Page 1 of 14
         HOTEL QUEEN ROAD PVT. LTD.            ..... Defendant
                         Through: Mr. Jayant Bhushan, Senior
                         Advocate with Mr. Mohit Chaudhary
                         and Mr. Jayant K. Mehta, Advocates.
        CORAM: JUSTICE S. MURALIDHAR

                                JUDGMENT

30.08.2013

IA Nos. 2368 of 2013 in CS (OS) No. 810 of 2012, 2370 of 2013 in CS (OS) No. 811 of 2012 and 2342 of 2013 in CS (OS) No. 812 of 2012 [under Order XXXVII Rule 3 (5) CPC by the Defendant seeking leave to defend]

1. This order disposes of three applications filed by the Defendant, Hotel Queen Road Private Limited ('HQRPL') under Order XXXVII Rule 3 (5) of the Code of Civil Procedure 1908 ('CPC'), one in each of the aforementioned summary suits, seeking leave to defend.

2. CS (OS) No. 810 of 2012 has been filed by Mashaian Di Hatti Limited ('MDHL') against HQRPL for recovery of Rs. 6 crores; CS (OS) No. 811 of 2012 has been filed by Mrs. Prerna Singh against HQRPL for recovery of Rs. 1.15 crores and CS (OS) No. 812 of 2012 has been filed by Seema Family Trust ('SFT') against HQRPL for recovery of Rs. 21 lakhs. In CS (OS) No. 810 of 2012 MDHL relies upon an agreement dated 5th June 2008 entered into between it and HQRPL; in CS (OS) No. 811 of 2012 Mrs. Prerna Singh relies upon an agreement dated 21st August 2008 and in CS(OS) No. 812 of 2002 SFT relies upon another separate agreement dated 21st August 2008.

3. In all three loan agreements the amount was loaned by way of "a temporary working capital funding based on returns on room rent basis." In the agreement dated 5th June 2008 with MDHL, the tenure of funding was for a maximum of six months. Under Clause 2 HQRPL agreed to pay Rs.1475 per day per guest room occupancy of 22 rooms in Hotel Ramada Plaza out of the block of first 50 guest rooms irrespective of the floor type or type of rooms let out and at any rate as compensation subject to TDS as per applicable rates on interest for the principal loan amount. Payment of the aforesaid compensation was to start on 6th May 2008. If there was a delay in commencement of commercial operations beyond the date of commencement of payment of compensation or if occupancy was below 22 rooms on any day after 6th May 2008, compensation would become payable. Payment of compensation for the first quarter was to be made by 16th August 2008 and for the second quarter by 16th November 2008. If there was delay in payment of compensation, then punitive interest @ 3% per month for the delayed period would be payable. More or less similar clauses were incorporated in the three loan agreements. All three loan agreements envisaged that HQRPL issue post dated cheques (PDCs) to the extent of security. Promissory notes for principal as well as compensation amounts were also executed.

4. The case of MDHL is that when HQRPL did not repay the loan amount as agreed, it issued a notice on 21st May 2010 for winding up of HQRPL. Thereafter it filed a winding up petition on 7th October 2010. In the said winding up petition, Defendant filed a reply admitting

to have received the entire sum but claimed that the said amount was "transferred with the fraudulent intent into the account of Respondent company in two tranches", first of it being on 6th May 2008 (Rs. 3.5 crores) and another on 5th November 2008 (Rs. 1 crore). As regards CS (OS) No. 811 of 2012, Mrs. Prerna Singh states that while the first cheque dated 7th December 2008 for Rs. 8,13,990 issued in her favour by HQRPL was credited to her account, the subsequent cheque dated 7th March 2009 was dishonoured. She issued a notice on 26th October 2009 for winding up of HQRPL and thereafter filed a winding up petition on 7th October 2010. In reply thereto, HQRPL stated that "the amount of 90 lacs was transferred with fraudulent intent into the account of the respondent company on" 23rd August 2008. In CS (OS) No. 812 of 2012, SFT states that HQRPL paid the first instalment of compensation of Rs. 1,35,665 by a cheque dated 7th December 2008 and also issued the TDS certificate to the Plaintiff. However, the subsequent cheque issued by HQRPL was dishonoured. SFT also filed a winding up petition in reply to which HQRPL stated that the loan amount advanced by the Plaintiff "was transferred with fraudulent intent into the account of the respondent company" on 25th August 2008.

5. The winding up petitions filed by the Plaintiffs as well as the other creditors against the HQRPL were disposed of by the Company Court on 23rd January 2012. The said order reads as under:

"Mr. Arun Kathpalia, learned counsel for respondent company submits that in a bid to amicably resolve the present matters, the Respondent company, without

prejudice to its rights and contentions is willing to deposit a sum of Rs. 10 crores in its own name in an interest bearing Fixed Deposit Receipt in a bank within a period of four weeks. He, however, clarifies that the interest of the Fixed Deposit Receipt shall be utilized by the respondent company for its own business purposes.

While Mr. Nagesh, learned counsel for petitioners in Company Petitions No. 476/2009 and 477/2009 states that he has already filed the recovery suits against the respondent company, Mr. Kamal Sawhney, learned counsel for petitioners in Company Petitions No. 165, 166, 441, 442 and 443 of 2010 states that he will be filing recovery proceedings against the respondent company within a period of four weeks.

Both Mr. Nagesh as well as Mr. Kamal Sawhney state that in case the respondent undertakes not to encash the aforesaid Fixed Deposit Receipt till the recovery forum decides the disputes between the parties, they are willing to accept the respondent-company's offer.

Mr. Arun Kathpalia states that the respondent shall not encash the said Fixed Deposit Receipt till the recovery forum decides the disputes between the parties.

The aforesaid statements made by learned counsel for the parties are accepted by this Court and the parties are held bound by the same.

Accordingly, with the consent of the parties I dispose of the present petitions by directing the respondent-company to deposit a sum of Rs. 10 crores in an interest bearing FDR with a bank in Respondent's name initially for a

period of two years. Respondent would produce the said FDR before the Registrar General of this Court for endorsement so that the said amount cannot be encashed without leave of the Registrar General.

List before Registrar General on 27th February, 2012 for the purpose of endorsement. The said Fixed Deposit Receipt shall be renewed from time to time till the recovery forum finally decides the disputes between the parties. It is made clear that the aforesaid Fixed Deposit Receipt would abide by any order which may be passed by the recovery forum.

In the event, if Mr. Kamal Sawhney's clients do not file recovery proceedings within the stipulated period, respondent company would be entitled to seek modification of the present order.

Similarly, in the event, if the Fixed Deposit Receipt is not created by the respondent company within a period of four weeks, Petitioners shall be at liberty to seek revival of the present petition.

Needless to say that this order is without prejudice to the rights and contentions of the parties. Further the competent forum is directed to decide the recovery cases on merits, without being influenced by any observations made by this Court.

With the aforesaid observations, the present petitions and pending applications stand disposed of."

6. It is stated that pursuant to the said order HQRPL deposited a sum of

Rs. 10 crores in the Court. The amount has been kept in a fixed deposit which has been kept renewed from time to time. It may be noted at this stage that the above order was passed in winding up petitions filed by MDHL and 13 other entities, including Ms. Prerna Singh and SFT. Thereafter the said entities, including the three Plaintiffs herein, have filed either summary suits or regular suits. The principal sum allegedly owed by HQRPL to the said entities which have filed suits, both summary and regular, is well over Rs. 20 crores. The principal sums claimed by MDHL, Prerna Singh and SFT in these three summary suits are Rs. 4.5 crores, Rs. 90 lakhs and Rs. 21 lakhs respectively. Each of them has also claimed further interest and compensation.

7. The defence of HQRPL in the three suits is more or less similar. A reference has been made to the disputes between the present and erstwhile management of HQRPL. The present management is controlled by Mr. Ashok Mittal whereas the erstwhile management was under the control of Mr. R.P. Mittal. The case of the present management is that the transactions involving HQRPL under the previous management were fraudulent in nature. It is claimed that one of the key persons involved in the financial transactions concerning HQRPL under the previous management was a Chartered Accountant, Mr. Vinod Kumar Bindal, who figures in the list of 'undesirable persons' issued by the Central Bureau of Investigation ('CBI'). It is pointed out that Mr. Bindal was named as an Arbitrator in the loan agreement. It is stated that Mr. R.P. Mittal illegally and fraudulently diverted the loan amounts borrowed in the name of HQRPL to his

personal accounts or the accounts of entities controlled by him. Moral Trading and Investment Limited ('Moral') was a closely held company of Mr. R.P. Mittal and his family members. It is stated that Mrs. Prerna Singh is the daughter of Mr. Vinod Kumar Bindal. SFT is controlled by his son-in-law, Mr. Ankit Singh, husband of Mrs. Prerna Singh.

8. It is denied by the present HQRPL management that Mr. Ankit Singh issued a loan of Rs. 55 lakhs in its favour for paying the dues of the banks. It is pointed out that on 23rd January 2009 an order was passed by the Division Bench in CM No. 117 of 2009 in FAO (OS) No. 440 of 2008 recording that the said amount by way of demand draft had been handed over by Mr. R.P. Mittal along with a personal cheque for Rs. 76,545 since tax liability was admitted to be owed by Mr. R.P. Mittal and not HQRPL. An application was later filed by Mr. Ashok Mittal, HQRPL and Hillcrest Reality Sdn. Bhd. in the said matter before the Division Bench (Crl. M A. No. 18640 of 2010) for initiation of proceedings against Mr. R.P. Mittal under Section 340 CrPC for making a false statement. An order was passed in the said application on 10th September 2012 by the Division Bench (DB) noting the above contentions. The DB observed that "the same will be dealt with and examined in the said proceedings in accordance with law". It is accordingly submitted that the transactions on the basis of which the suits have been filed are fraudulent and therefore, unconditional leave to defend should be granted.

9. Mr. Jayant Bhushan, learned Senior counsel appearing for HQRPL,

relied upon the decisions of the Supreme Court in M/s. Mechelec Engineers & Manufacturers v. M/s. Basic Equipment Corporation (1976) 4 SCC 687 and Fixity packaging Industries Private Limited (2009) 8 SCC 761. Mr. Bhushan submitted that the Plaintiffs could not take the benefit of the doctrine of indoor management as they were related to or connected with Mr. Bindal. Reliance is also placed on the decision of the Supreme Court in MRF Limited v. Manohar Parrikar (2010) 11 SCC 374. Mr. Bhushan submitted that in any event HQRPL has already deposited Rs. 10 crores in the Court and this was more than sufficient for the grant of leave to defend. On the other hand Mr. Kamal Sawhney, learned counsel for the Plaintiffs, submitted that there is no denial by HQRPL that the above loan amounts have been advanced to it by the Plaintiffs. He further pointed out that at least two cheques towards the first instalments were issued by HQRPL and TDS certificates had also been issued by it. He submitted that in determining the liability of HQRPL, the character of Mr. Bindal was irrelevant. The issuance of TDS certificates was an acknowledgement of the liability of HQRPL. As regards MDHL, he submitted that its annual turnover was over Rs. 100 crores and there was no question of it indulging in any fraudulent transaction.

10. The above submissions have been considered by the Court. In the first place it requires to be noticed that there is no denial by HQRPL that the aforementioned amounts were in fact advanced to HQRPL by the three Plaintiffs. However, the question concerning the liability of HQRPL to repay the said amounts have to be viewed in the

background of the defences taken by HQRPL in each of the suits. Before discussing the facts in each of the suits, it is necessary to recapitulate the law as explained by the Supreme Court.

11. In Mechelec Engineers & Manufacturers the Court set out the illustrative instances when leave to defend should be granted, unconditionally or otherwise. The relevant passage reads as under:

"8. In Smt. Kiranmoyee Dassi v. Dr. J. Chatterjee AIR 1949 Cal 479, Das J., after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by Order 17 CPC in the form of the following propositions:

(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, eschews 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."

12. As far as the suit filed by MDHL is concerned, the only explanation offered by HQRPL for avoiding liability is that Mr. Bindal was the auditor of both HQRPL and MDHL and he was the arbitrator named in the agreement. It is submitted that these factors make the validity of the loan transaction doubtful. The Court finds that the above defence of HQRPL to the suit by MDHL is in fact no defence at all.

The borrowing of the loan is not denied. The mere fact that both companies at the relevant time had a common auditor, and that he was

named as an arbitrator in the disputes between them, cannot come in the way of MDHL seeking to recover the amount due to it. MDHL has no other connection whatsoever with Mr. Bindal. The services offered by him in his professional capacity to MDHL cannot be used to negate the liability of HQRPL under the loan agreement. Consequently, this Court does not find the defence of HQRPL in the summary suit by MDHL to be of a nature where unconditional leave to defend ought to be granted.

13. In the circumstances the Court is of the view that as a condition for grant of leave to defend the suit CS (OS) No. 810 of 2012 filed by MDHL, HQRPL should deposit in the Court the principal sum claimed by MDHL i.e. Rs. 1.15 crores within a period of eight weeks, failing which the defence of HQRPL in the suit is liable to be struck off. The amount so deposited will be kept in the fixed deposit receipt in a nationalized bank and kept renewed from time to time.

14. As far as the suits filed by Mrs. Prerna Singh and SFT are concerned, the Court finds that the defence set up by HQRPL raises triable issues. The fact that Mrs. Prerna Singh is the daughter and Mr. Ankit Singh of STF is the son-in-law of Mr. Bindal, and given the specific allegations regarding the manner in which the monies that were loaned are alleged to have been utilised makes the defence of HQRPL fall under the ambit of clause (c) in the above passage in the decision in Smt. Kiranmoyee Dassi which was approved by the Supreme Court in its decision in Mechelec Engineers &

Manufacturers i.e. it discloses such facts as may be deemed sufficient to infer that at the trial HQRPL may be able to establish its defence to the Plaintiffs' claims. In such 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." Nevertheless, the Court finds that the sum of Rs. 10 crores already deposited by HQRPL in the Court in terms of the order dated 23rd January 2012 of the Company Court, although not exclusively in the Plaintiffs' suits, is sufficient to grant HQRPL leave to defend in the two suits i.e. CS (OS) Nos. 811 and 812 of 2012 without any further conditions.

15. Accordingly in CS (OS) No. 810 of 2012 filed by MDHL, leave is granted to HQRPL to defend the suit subject to HQRPL depositing in the Court within a period of eight weeks from today Rs. 1.15 crores, failing which the defence of HQRPL in the suit is liable to be struck off. The amount so deposited will be kept in the fixed deposit receipt in a nationalized bank and kept renewed from time to time.

16. I.A. No. 2368 of 2013 in CS (OS) No. 810 of 2012 is disposed of accordingly.

17. In CS (OS) Nos. 811 and 812 of 2012 filed by Mrs. Prena Singh and SFT respectively, leave is granted to HQRPL to defend the suits without any further conditions in view of the sum of Rs. 10 crores already deposited by HQRPL in terms of the order dated 23rd January 2012 of the Company Court. Prior permission of the Court will be

sought in the event that any part of the said sum of Rs. 10 crores (together with the interest accrued thereon) is sought to be utilised for making payments to any other claimant in any other suit.

18. I.A. Nos. 2370 in CS (OS) No. 811 of 2012 and 2342 of 2013 in CS (OS) No. 812 of 2012 are accordingly disposed of.

S. MURALIDHAR, J AUGUST 30, 2013 rk