Apollo International Ltd. vs Supriya Pharmaceuticals Ltd.
2016 Latest Caselaw 896 Del

$~1.
*      IN THE HIGH COURT OF DELHI AT NEW DELHI
+      CS(OS) 2815/1999
       APOLLO INTERNATIONAL LTD.              ..... Plaintiff
                    Through: Mr. B.L. Wali and Ms. Deepti Gupta,
                             Advocates

                           versus

       SUPRIYA PHARMACEUTICALS LTD.            ..... Defendant
                    Through: Mr. Vivek Sibal, Advocate with
                             Mr. Rahul Sharma, Advocate for the
                             applicant

       CORAM:
       HON'BLE MR. JUSTICE VIPIN SANGHI

                                    ORDER

% 05.02.2016

I.A. No. 5852/2014 (U/O 9 Rule 13 CPC)

1. I have heard learned counsels on this application preferred by the defendant under Order 9 Rule 13 CPC for setting aside the judgment and decree dated 15.01.2014.

2. The plaintiff-Apollo International Ltd., preferred the suit in question for recovery of Rs. 6,22,42,540/- along with pendente lite and future interest. Summons were issued in the suit on 24.12.1999. This Court also passed an ex parte ad interim order of injunction against the defendant company restraining the defendant company from disposing of two of its properties-one situated at Okhla Industrial Area, New Delhi, and the other at Riico Industrial Area, Bhiwadi, Alwar, Rajasthan. The case of the defendant

company was referred to Board for Industrial and Financial Reconstruction (BIFR). The defendant was registered as a sick company under Sick Industrial Companies Act, 1985 (SICA). Consequently, on 10.08.2001, the Court suspended the proceedings in the suit and the proceedings were adjourned sine die. In the meantime, it appears, that the tussle to wrest the management of the defendant company was in progress, and the then Managing Director - Mr. Vijay Julka of the defendant company was sought to be dislodged and a new management inducted. On 08.02.2012, in an Extra Ordinary General Meeting of the defendant company, Mr. Vijay Julka, Managing Director, was removed from directorship of defendant company forthwith, and Mr. Ramesh Dugar was appointed as a Director of the company. The change in the management was intimated to the Registrar of Companies on the same day. At that stage, the suit was being defended on behalf of the defendant by Shri H.C.Dhall, Advocate, who was appointed by the erstwhile management under Mr. Vijay Julka. On 06.09.2012, BIFR approved the bid of Mr. Ramesh Dugar as the highest bidder, and called upon him to submit a DRS with the operating agency.

3. On 16.10.2012, this Court passed an order in the present suit, holding that no permission is required under Section 22 of SICA to proceed with the suit. This order was passed on the statement of the plaintiff that the plaintiff does not press its interim applications under Order 38 Rule 5 CPC and Order 39 Rules 1 and 2 CPC for creation of encumbrance qua the assets of the defendant company. Consequently, by this order, the Court granted six weeks' time to the defendant to file its written statement and documents. The proceedings in the suit were adjourned to 18.12.2012 before the Joint Registrar, and before Court on 21.01.2013 for framing of issues.

4. It appears that Mr. Dhall, Advocate, preferred an appeal being FAO(OS) 32/2013 to assail the order dated 16.10.2012. This appeal was, however, not pursued by Mr. Dhall, as he did not appear before the court and the said appeal was dismissed for non-prosecution on 13.01.2014. The proceedings in the suit, in the meantime, were adjourned as plaintiff moved an application under Order 8 Rule 1 and 10 CPC(on account of non-filing of written statement by the defendant); on account of the defendant moving an application being I.A. No. 89/13 for stay of the proceedings, and, also to await the disposal of the aforesaid appeal i.e. FAO(OS) 32/2013.

5. On 15.01.2014, when the matter came up before this Court, none appeared for the defendant. No written statement had been filed on behalf of the defendant and, consequently, while invoking Order 8 Rule 10 CPC, the Court proceeded to pass a decree in favour of the plaintiff and against the defendant for the suit amount of Rs. 6,22,42,540/- along with pendente lite and future interest @ 9% per annum. It is only thereafter that the present application has been moved by the defendant initially on 07.03.2014 through counsels Sibal & Co. to seek the setting aside of the said decree, claiming the same to be an ex parte decree.

6. The submission of learned counsel for the defendant/applicant is that the erstwhile management headed by Mr. Vijay Julka and the counsel instructed by him did not follow up the proceedings in the suit and deliberately did not file the written statement to defend the present suit, leading to the passing of the decree by this Court on 15.01.2014. Learned counsel submits that only after the dismissal of the first appeal i.e. FAO(OS) 32/2013, and passing of the decree in the present suit, Mr. Julka, for the first time, informed about the suit and the appeal to the new management of the

defendant company vide letter dated 31.01.2014. In the letter dated 31.01.2014, Mr. Julka, inter alia, stated:

"Dear Mr. Dugar, You may please note that the following is pending before the Hon'ble High Court of Delhi, which is already known to you:

(a) Apollo nternational Limited vs. Supriya Pharmaceuticals Ltd. [CS(OS) 2815/1999]; and

(b) Supriya Pharmaceuticals Limited Vs. Apollo International Limited [FAO(OS) 32/2013] The same may therefore be take note of the same and take care of the same in the interests of the Company. This is for your information and records.

Regards,

Sd/-

Vijay Julka"

7. Learned counsel submits that Mr. Vijay Julka withheld the information with regard to the passing of the order dated 16.10.2012, whereby the proceedings in the suit were revived, and thus the management of the defendant company-which had assumed office in February, 2012, was not aware of the said developments. Learned counsel points out that the plaintiff had itself placed before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) several documents in relation to the present suit, which included the order dated 24.12.1999, whereby the proceedings in the suit had been stayed and, thus, the management continued to reel under the impression that the proceedings in the suit are still under stay.

8. In response to the letter dated 31.01.2014, the defendant company sent a communication on 07.02.2014, inter alia, stating;

"It is quite obvious that you are fully aware about the fact of the suit being decreed against the Company as aforesaid on 15.1.2014 and also about the appeal having been dismissed for non prosecution on 13.1.2014. You have been negligent in handling the cases and being fully aware of the same, you have written the letter dated 31.01.2014 to me with oblique motives.

I have been reminding you time and again to hand over the statutory records and other important information pertaining to the Company such as list of pending Court cases etc. By letter dated 15.1.2014, I had requested you for statutory records of the Company. I have till date neither received a reply from you nor companies of the statutory records.

I once again request you to hand over to the company and to the undersigned all statutory records including books of accounts and also to furnish to us all relevant/important information such as list of pending cases, copies of pending contracts, details of dues recoverable from third parties etc. so that interests of the Company are protected fully and statutory compliances are also done.

This is without prejudice to all rights of the Company and of the undersigned against you, including the right to claim and recover damages and losses caused on account of your non furnishing the records and important information to the Company and also for your negligence in handling the legal matters of the Company."

9. It appears that the battle between the old Management headed by Mr. Vijay Julka and the new management headed by Mr. Ramesh Dugar continued even after the BIFR passed the order on 08.09.2012-accepting the highest bid given by Mr. Dugar and asking him to submit the DRS. That tussle continued even after the new management of the defendant company

filed the present application on 07.03.2014. The present application had come up before the Court on 28.03.2014, and the Court had issued notice to the plaintiff. The defendant had appeared through counsel Mr. Rahul Sharma, Advocate, (who is one of the Advocates engaged by the new management-working in Sibal & Co.) on the said date. The plaintiff accepted notice and had been granted four weeks' time to file the reply. On 14.07.2014, the defendant/applicant, appeared through Mr. Jitender Ratta, Advocate (also an Advocate working in Sibal & Co.) and sought time to file the rejoinder, and the proceedings were adjourned to 10.10.2014.

10. In the meantime, Mr. Julka assailed the EoGM held on 08.02.2012 before the Company Law Board, which held that the said EoGM was not validly held vide order dated 25.08.2014. On the strength of the said order, Mr. Julka sought to re-assert his right to manage the affairs of the defendant company. On 10.10.2014, on the strength of the order passed by the Company Law Board, another counsel sought to appear on behalf of the defendant company-appointed by Mr. Vijay Julka, and stated that he would now represent the defendant company. He even filed a fresh Vakalatnama. The same is found on record. It was issued by Mr. Vijay Julka as Director of the defendant company on 20.09.2014 and filed in the Registry on 23.09.2014 in favour of Mr. Vinayak Malhotra, Advocate and Mr. Samar Bansal, Advocate. This submission was opposed by counsel for the plaintiff, and also the present counsel for the defendant-applicant. Mr. Samar Bansal, Advocate, (typed in the order-sheet as Mr. Sameer Bansal) appointed by Mr. Vijay Julka, appeared before the Court on the following date i.e. 09.12.2014.

11. However, the request of Mr. Vijay Julka to be reinstated in the

management was rejected by AAIFR on 07.04.2015, whereafter the said Mr. Bansal disappeared from the proceedings and the present application is being pursued by the counsels M/s Sibal & Co..

12. Mr. Sibal, learned counsel for the defendant, submits that the conduct of Mr. Julka, from the beginning, is highly suspect and it appears that he not only acted to the detriment of the defendant company in the present case while remaining in office as the Managing Director of the defendant company, but he also appears to have colluded with the plaintiff. Mr. Sibal points out that even though this Court had passed the order of injunction qua the two properties aforesaid on 24.12.1999, Mr. Julka sought to encumber the Okhla property by creating a mortgage. When the said fact was brought to the notice of the Court by the plaintiff, the said mortgage was released. Thereafter, Mr. Julka entered into a settlement with the plaintiff to settle the claim in the suit for Rs. 1.95 crores (this fact is disclosed by the plaintiff itself in para 13 of its reply to the present application), and out of the said amount, Rs. 146.29 lacs was paid to the plaintiff. Mr. Sibal points out that even though the Okhla property was the property of the defendant company, Mr. Julka sought to treat the same as his own personal property and, on that basis, he created a mortgage in favour of the plaintiff in respect of the said property on 01.10.2003 to secure the amount of Rs. 20 lacs. The said mortgage was released on 01.10.2003. Both, the creation of the mortgage and its release are by registered instruments. The release was made on the premise that Mr. Julka shall sell the property and pay an amount of Rs. 20 lacs from the sale proceeds to the plaintiff.

13. Mr. Sibal points out that after the said release, Mr. Julka sought to dispose of the said property for a paltry amount of Rs.7.5 lacs to a third

party, and paid Rs. 20 lacs to the plaintiff which forms a part of the total amount paid i.e. Rs. 146.29 lacs. Mr. Sibal submits that the aforesaid encumbrances were created and released; and eventually Okhla property was sold, in breach of the order of injunction dated 24.12.1999. He submits that the same was also in breach of the orders passed by the BIFR. Mr. Sibal points out that the plaintiff also did not bring it to the notice of this Court- when the ex parte decree was passed, that the plaintiff had already received 146.29 lacs and, consequently, this Court did not even grant adjustment of the said amount, which had been received by the plaintiff. Mr.Sibal has drawn the attention of the Court to the order passed by AAIFR on 07.08.2014 wherein the AAIFR has returned a finding, inter alia, that;

".....Shri Julka even after being removed from the management of SPL illegally continued to ostensibly act on behalf of the company to suffer an ex parte decree of Rs.6.22 crores in a suit filed by M/s Apollo International Ltd. before the Hon'ble High Court of Delhi. It is only after passing of the aforesaid order that Shri Vijay Julka addressed a letter dated 30.01.2014 informing the present management of the pendency of the present case. The aforesaid order of the Hon'ble High Court of Delhi and the subsequent letter of Mr. Vijay Julka have been placed on record before this Authority by way of additional affidavit dated 12.02.2014. On the basis of the aforesaid submissions, it is clear that Mr. Vijay Julka has acted in a detrimental manner to the interests of the company over the years and stripped of the assets of the company for personal gain and enrichment."

[Emphasis supplied]

14. In relation to the sale of the Okhla property, the AAIFR in the same order observed;

".......As is apparent from the face of record that the sale of

Okhla office was also in violation of the injunction order passed by the Hon'ble High Court of Delhi in Civil Suit No. 2815/99, which was filed by M/s Appollo International Ltd., against the company for the recovery."

15. The AAIFR has held the said sale in favour of the third party to be bad.

16. The said order of the AAIFR has been affirmed by this Court in WP(C) No. 5295/2014 decided on 13.11.2014. This Court in its order had observed that the sale made to the third party was ostensibly doubtful, for the reason that it had been sold for a paltry amount of Rs.7.5 lacs, whereas, the book value of the property after depreciation was Rs. 8.89 lacs. In the balance-sheet for the year ending 31.03.1994, the value of the property was shown at Rs. 15.18 lacs.

17. In this background, the submission of Mr. Sibal is that the interest of the vast body of shareholders of the defendant company, which is a listed company, was sacrificed by Mr. Julka by deliberately not bringing to the notice of the new management the order dated 16.10.2012, which was passed in the presence of counsel appointed by him to represent the defendant company. Thereafter, the counsel appointed by Mr. Julka failed to appear when FAO(OS) 32/2013 was taken up by the Division Bench. Resultantly, the said appeal was also dismissed for non-prosecution. Neither Mr. Julka caused the written statement to be filed in the present case through the counsel engaged by him, nor did he inform of the said obligation to the new management which continued to reel under the impression that the proceedings in the suit are lying stayed. It is in this background that the defendant could not file the written statement and the decree came to be

passed by this Court on account of non-filing of the written statement by the defendant, behind the back of the defendant. Mr. Sibal submits that the present will be a case falling within the four corners of Order 13 Rule 9 CPC inasmuch, as, the defendant was prevented by sufficient cause from appearing when the suit was called on for hearing and, consequently, the decree came to be passed against the defendant behind its back.

18. On the other hand, the submission of Mr. Wali, learned counsel for the plaintiff is that the defendant has failed to explain as to how an application under Order 9 Rule 13 CPC could be maintained in the present circumstances, as the decree had been passed by invoking Order 8 Rule 10 CPC-on account of non-filing of the written statement by the defendant, and not on account of non-appearance of the defendant before the Court on 15.01.2014. He submits that the conduct of the defendant is doubtful inasmuch, as, the new Management had come into position in February, 2012; the order was passed by this Court restoring the proceedings in the suit eight months later i.e. on 16.10.2012; the appeal was preferred by the counsel for the defendant-being FAO(OS) 32/2013, which came to be dismissed only on 13.01.2014; and eventually the suit was decreed on 15.01.2014. All this while, the defendant was represented through one or the other counsel, and had even moved an application for stay of the proceedings in the suit. Mr. Wali submits that there was no collusion between the plaintiff and Mr. Vijay Julka, and this is evident from the fact that plaintiff had, in fact, initiated proceedings for contempt on account of Mr. Julka's encumbering the Okhla property contrary to the order dated 24.12.1999. Mr. Wali submits that he had informed the Court at the time of hearing on 15.01.2014 that the plaintiff had received certain amounts under

a compromise which had fallen through.

19. Having heard learned counsels and perused the record relied upon on both sides, it is evident that when the suit was filed, the same was contested by the defendant through an Advocate appointed by the then management, headed by Mr. Vijay Julka, Managing Director. From the record, it appears that Mr. Vijay Julka first appointed Mr. T.S.Upadhyay, Advocate and Mr. Munish Upadhyay, Advocate, on behalf of the defendant company on 30.03.2000. The second Vakalatnama was filed by Mr. J.P.Sengh, Ms. Zubeda Begum and Ms. Garima Kapoor, Advocates, on 15.05.2002. It was signed by the then Managing Director of the defendant company - Mr. Vijay Julka. Thereafter, Mr. Vijay Julka, again acting as the Managing Director of the defendant company appointed Mr. H.C.Dhall, Advocate, Mr. K.K.Jha, Advocate, and Mr. Amit Dhall, Advocate, vide Vakalatnama, dated 26.07.2008, which is found on record. It is, therefore, clear that it was Mr. Julka, the then Managing Director of the defendant company, who was pursuing the matter on behalf of the defendant company. That position, admittedly, continued till the passing of the order dated 16.10.2012. Even thereafter, the defendant company continued to be represented by Mr. H.C.Dhall, Advocate, who filed I.A. No. 89/2013 to seek stay of the proceedings in the suit.

20. It appears that the new Management of the defendant company headed by Mr. Ramesh Dugar did not get the wind of the proceedings in the suit being re-started vide order dated 16.10.2012 and of the subsequent orders passed in the proceedings, even till 15.01.2014, when the suit was decreed by the Court. The plaintiff had filed the orders passed in the suit before the AAIFR on 16.03.2012. The situation as it existed on the said date

was the proceedings in the suit stood stayed vide order dated 10.08.2001. Thus, the new Management of the defendant company had no reason to believe that the proceedings in the suit had been revived and the defendant had been called upon to file the written statement vide order dated 16.10.2012. After Mr. Julka had been dislodged from the management by the EoGM on 08.02.2012, and BIFR had also approved the bid of Mr. Dugar on 06.09.2012, Mr. Julka and the counsel appointed by him should have put the defendant company, through its new Management, to notice about the status of the present case. However, that was not done by either Mr. Julka or Mr. Dhall, who was regularly appearing in the suit on behalf of the defendant company prior to the passing of the order dated 16.10.2012. Even on 16.10.2012, Mr. Dhall did not inform the court with regard to the change of Management and that he would take instructions from the new Management, i.e. whether to represent the defendant company, or not. Even after the passing of the order dated 16.10.2012, even though the new Management was firmly in place, neither Mr. Julka nor counsel Mr. H.C.Dhall informed the new Management of the order dated 16.10.2012 and the requirement of filing the written statement by the defendant company. Instead, without any authority, Mr. Julka apparently authorized Mr. Dhall to prefer FAO(OS) 32/2013, which he did, only to let the same be dismissed for non-prosecution on 13.01.2014. Mr. Dhall also filed the application to seek stay i.e. I.A. 89/2013 initially on 13.12.2012. Along with the said application, the affidavit of Mr. Vijay Julka is found on record. Pertinently, Mr. Vijay Julka, in his affidavit accompanying this application, does not disclose in what capacity he was acting, as by that date, he had ceased to be the Managing Director/Director of the defendant company. It was in this

background that on 15.01.2014, on account of non-filing of written statement, the Court proceeded to decree the suit for Rs.6,22,42,540/- along with pendente lite and future interest @ 9% per annum. Pertinently, even though Mr. H.C.Dhall did not file the written statement after 16.10.2012, and also did not appear before the Court on several dates and did not pursue the appeal FAO(OS) 32/2013, Mr. Julka took no steps while acting on behalf of the defendant company, either against the said Mr. H.C.Dhall and the other counsels appointed along with him, or in the proceedings, to seek further time to file the written statement or to seek revival of the said FAO(OS) 32/2013. Mr. Julka simply sent a communication, after the first appeal had been dismissed and decree passed, informing the new Management of the pendency of the said proceedings on 31.01.2014. Even then, the new Management was not informed of the fact that the decree had been passed in the suit and the appeal had been dismissed for non- prosecution. The misconduct of Mr. Julka is writ large on the record, and has been taken note of by the AAIFR in the order dated 07.08.2014, relevant portion whereof has been extracted above. That order has been affirmed by this Court in WP(C) No. 5295/2014, decided on 13.11.2014.

21. The conduct of the plaintiff is also not free from doubt. Even if the conclusion of collusion between the plaintiff and Vijay Julka cannot be drawn from the facts available on record, it is evident that the plaintiff took undue advantage of the fact that the defendant was not represented when the suit came to be decreed by the Court on 15.01.2014. In all fairness, the plaintiff ought to have brought it to the notice of the Court that the plaintiff had received a substantial amount of about Rs. 1.40 crores under a failed settlement. The said amount was liable to be adjusted from the decretal

amount in any event.

22. The submission of Mr. Wali that he had informed the Court with regard to the receipt of the said amount on 15.01.2014 is not borne out from the record. Had that been disclosed, the Court certainly would have taken note of the said payment while passing the decree. Moreover, the plaintiff was aware that the proceedings relating to the defendant company were pending before the BIFR and AAIFR. Pertinently, the EoGM of the defendant company had been held on 08.02.2012 when Mr. Vijay Julka, the then Managing Director of the defendant company was removed and Mr. Ramesh Dugar took over as the Director of the defendant company. It was thereafter that the plaintiff filed its reply before the AAIFR on 16.03.2012. Thus, there was every possibility of the plaintiff being aware of the fact that Mr. Vijay Julka had no further authority to represent the defendant company in the suit proceedings. Yet, this aspect was not brought to the notice of the court by the plaintiff at any stage till the passing of the decree on 15.01.2014.

23. The plaintiff also sought to interfere with the order of injunction passed by the court at its instance on 24.12.1999 by, firstly, agreeing to creation of a mortgage in respect of the Okhla property and that too by Mr. Julka in his personal capacity-even though, the plaintiff itself had claimed the said property as that of the defendant company while seeking the injunctive relief. Thereafter, the plaintiff also agreed to release of the mortgage on the Okhla property on the premise that Mr. Julka may sell the said property and pay Rs.20 lacs to the plaintiff. This agreement arrived at between the plaintiff and Mr. Julka was also in breach of the order dated 24.12.1999.

24. The decree in question came to be passed, firstly, on account of non- filing of the written statement by the defendant and, secondly, because, none appeared for the defendant to explain the circumstances in which the written statement was not filed, and to seek further time for the said purpose. The decree has been passed behind the back of the defendant and it is an ex parte decree. In Rajinder Kumar Vs. Kuldeep Singh and others (2014) 15 SCC 529, the Supreme Court has observed that, ' No doubt, the decree passed under Order 8 Rule 10 of the Code of Civil Procedure, 1908 is an ex parte decree'. Reference may also be made to International Airport Authority of India Vs. Arvind Khanna 59(1995) Delhi Law Times 223 (DB). I, therefore, cannot agree with Mr. Wali that Order 9 Rule 13 CPC would not come into play in the facts and circumstances of this case. Merely because the Court had not passed an order under Order 9 Rule 6 (1)(a) CPC proceeding ex parte against the defendant, the decree in question does not cease to be an ex parte decree. It is ex parte, because it was passed behind the defendants back. The circumstances in which the defendant remained unrepresented; in which the written statement was not filed, and; eventually the suit was decreed ex parte have been sufficiently explained by the defendant. In my view, grave injustice will result to the defendant if, in these circumstances, the defendant is not permitted to re-open the decree and contest the suit on merits.

25. For all the aforesaid reasons, the present application deserves to be allowed and the order/decree dated 15.01.2014 deserves to be recalled. The plaintiff has, no doubt, been subjected to delay in the disposal of the suit and the setting aside of the ex parte decree would relegate the suit to a preliminary stage. In my view, the sufferings of the plaintiff can be, and

deserves to be, compensated in costs. Accordingly, the present application is allowed with costs quantified at Rs. 25,000/-. The costs be paid to the plaintiff within two weeks.

26. The application stands disposed of.

CS(OS) No. 2815/1999

27. Counsel for the defendant states that he is not possessed of the complete paper book. Let a copy of the same be supplied within three days against acknowledgement. Written statement/documents be filed positively within three weeks thereafter. It is made clear that no further time shall be granted. Replication within four weeks thereafter. The parties shall conduct admission/denial of documents on affidavit within eight weeks.

28. List the matter before the Joint Registrar for marking exhibits on 19.04.2016 and before Court for framing of issues on 19.07.2016.

VIPIN SANGHI, J FEBRUARY 05, 2016 sl