JUDGMENT
Mohd. Shamim, J.
1. Plaintiff through the present suit want to recover a sum of Rs. 3,54,217.04 including interest amounting to Rs. 1,24,200/- alleged to have been deposited with the defendants by way of advance price of certain machines, including a 300 tonne deep drying press.
2. The case of the plaintiff briefly stated is as under : that the plaintiff are a limited liability company. Shri R. K. Bhalla is the Managing, Director of the said company and is, as such, competent to bring forward the present suit and to sign and verify the plaint. He has also otherwise been authorised to file the present suit through a resolution dated January 14, 1984.
3. Defendant No. 1 had entered into a contract with the plaintiff for the supply of certain machines, including 300 tonne deep drying press oh ‘no profit no loss’ basis. The plaintiff in connection therewith deposited with defendant No! 1 a sum of Rs. 4,05,000/- by way of advance. Defendant No. 1 had oral discussions with the plaintiff on October 26, 1979 and in pursuance thereto submitted a quotation of L.P.G. Cylinder Plant/Machinery. The said quotation was further followed by a letter dated August 2, 1980 as a revised quotation. The same was accepted by the plaintiff.
4. Defendant No. 1 had entered into a contract with M7s. Swadeshi Engineering Company, Mayapuri, New Delhi, lor the manufacture of the said deep drying press and supplied to them in connection therewith material worth Rs. 91,482.96. They also paid a sum of Rs. 60,000/- to the said Swadesi Engineering Company. In this way a sum of Rs. 1,51,482.96 was paid to M/s. Swadeshi Engineering Company. The plaintiff made various payments to defendant No. 1 to the tune of Rs.4,05,000/-, details whereof are as under:
2-11-70
Rs. 30,000.00
23-11-79
Cheque No. 283902 NBI
Rs. 15,000.00
28-11-79
Cheque No. 283903 NBI
Rs. 20,000.00
28-11-79
Cheque No. 3905
Rs. 30,000.00
2-1-80
Cheque No. 3908
Rs. 30,000.00
6-5-80
Cash
Rs. 20,000.00
7-5-80
Cheque No.
3910
Rs. 20,000.00
8-5-80
Cash
Rs. 20,000.00
12/19-5-80
Cash 12/5
Rs. 50.000.00
19-5-80
Cash 19/5
Rs. 20,000.00
23-5-80
Cheque No.
3911
Rs. 10,000.00
10-8-80
Cash
Rs. 35,000.00
10-11-80
Cash for
Elcc.
Bill
Rs. 17,000.00
09-12-80
Cheque 39 14
Rs. 100.000.00
Rs. 417,000.00
Less received
cash on
13-11-1980
Rs. 12,000.00
Rs. 405,000.00
5. The contract alluded to above also finds a mention in the agreement dated January 24, 1981 in between thq defendants and Shri M.R. Bhalla and Shri R.R. Bhalla, residents of 51, Anand Lok. New Delhi. The said agreement was signed by defendants Nos. 2 and 3 also. Out of the machines which were to be supplied to the plaintiff by defendant No. 1, one circuit cutting machine was bought by defendant No. 1 from Bombay valued at Rs. 23,500/- and the same was delivered to the plaintiff. Defendant No. 1 in this way paid to the plaintiff a sum of Rs. 1,51,482.92 and Rs. 23,500/-by way of price of the said machine thereby leaving a balance of Rs. 2,30,017.04 outstanding against the defendants. Defendant No. 1 is thus liable to pay the said amount to the plaintiff along with interest at the rate of 18% per annum from December 20, 1980 till the date of the institution of the suit, amounting to Rs. 1,24,200/-. The plaintiff thus claim a sum of Rs. 3,54,217.04 from the defendants.
6. All the defendants are jointly and severally liable to pay the said amount to the plaintiff. Defendants Nos. 2 and 3 hd undertaken to secure the supply of the said machinery for the plaintiff on behalf of defendant No. 1. Thus they are also liable for the said amount. The plaintiff had already taken delivery of the said deep drying press from M/s. Swadeshi Engineering Company after spending a considerable amount. It was the obligation of defendant No. 1 to secure the same from M7s. Swadeshi Engineering Company and to supply the same to the plaintiff. The said Swadeshi Engineering Company did not give delivery of the said machine to defendant No. 1, as they failed to make necessary payment by way of price of the same. Since defendants have flailed to make payment to the plaintiff of the various amounts paid to them by way of advance in connection with the supply of the said machine, hence arose the necessity for the institution of the present suit.
7. Defendants have put in contest, inter alia, on the following grounds : that Shri R. K. Bhalla is neither the Managing Director of the plaintiff company nor is he authorised to institute the present suit and to sign and verify the plaint. The suit is barred by time.
8. Defendant No. 1 had written a letter dated October 26, 1979 to the plaintiff giving, therein quotations for supply of different type of machines to the plaintiff. The plaintiff by their letter dated November 2, 1979 accepted the said offer. The delivery period for the said machine was three months from the date of acceptance of the said order Defendant No. 1 never received from the plaintiff the payments mentioned vide para 3 of the plaint. The books of account of defendant No. 1 show a sum of Rs. 3,15,000/- to have been received by way of advance from the plaintiff while the cost of the said deep drying press was Rs. 3,50,000/- excluding excise duty and other statutory levies. It is also wrong and false that the machine was to be Supplied by defendant No. 1 to the plaintiff on ‘no profit no loss’ basis. There is no record with defendant No. 1 with regard to the receipt of the letter dated August 21, 1980. It is wrong and false that the plaintiff paid a sum of Rs. 4,05,000/- to defendant No. 1 by way of advance. In fact, they paid only a sum of Rs. 3,15,000/-. Shri M.R. Bhalla and Shri R.R. Bhalla and various other shareholders of defendant No, 1 sold their shares to defendants Nos. 2 and 3 and other different persons. Defendants Nos. 2 and 3 became Directors of defendant No. 1 after the purchase of the said shares and subsequent to the signing of the agreement dated January 24, 1981. Defendant No. 1 was not a party to the said agreement, consequently, defendant No. 1 are not bound by the said agreement. It is wrong and false that a sum of Rs. 2,30,017.04 is due from defendant No. 1 to the plaintiff. However, it is true that the plaintiff supplied a circuit cutting machine valued at Rs. 23,500/- and a deep drying press of the value of Rs. 3,50,000/-. Thus the total value of the machinery supplied to the plaintiff was more than the amount paid by the plaintiff to defendant No. l, DefendantNo. 1 received from the plaintiff a sum of Rs. 3,15,000/-. Hence the plaintiff are liable to pay to defendant No. 1 a sum of Rs. 58,500/-. In this way nothing is due to the plaintiff from defendant No. 1. Hence there is no question of payment of interest by defendant No. 1 to the plaintiff. The suit is thus liable to be dismissed.
9. Defendants Nos. 2 and 3 have resisted the claim of the plaintiff through their separate written statements. According to them, there is no privity of contract in between the plaintiff and defendants Nos. 2 and 3. Defendants Nos. 2 and 3 did not give any undertaking to the plaintiff that they would be liable for the said amount. It is also wrong and false that the defendants had undertaken to secure the supply of any machinery to the paintiff. By the agreement dated January 24, 1981 the vendors in the said agreement agreed to secure retirement or resignation of the then team of the Directors on the Board of defendant No. 1. The agreement dated January 24, 198I is in between Mulkh Raj Bhalla and Shri Raj Rattan Bhalla on the one hand, and defendants NOS. 2 and 3 on the other. They agreed to sell their shares and that of their friends and relatives in the said company to defendants Nos. 2 and 3. The said agreement was by Mulkh Raj Bhalla and Raj Rattan Bhalla in their individual capacity. Defendants Nos. 2 and 3 are thus in no way liable to pay anything to the plaintiff. In any case, the agreement dated January 24, 1981 does not stipulate any such conditions which binds the defendants Nos. 2 and 3 to make any payment to the plaintiff. The suit is false and frivolous. It is liable to be dismissed.
10. The following issues were framed by the learned predecessor of this Court vide order dated May 14, 1985:–
1. Whether the suit is properly instituted?
2. Whether the suit is barred by limitation?
3. Whether there is any privity of contract between the plaintiff and defendants 2 and 3?
4. Whether the plaintiff entered into a contract with defendant No. 1 for supply of machinery being 300 tonne Deep Drying Press and other machinery on no profit no loss basis, and whether the plaintiff deposited with defendant No. 1 a sum of Rs. 4,05,000/- as advance towards the same?
5. What were the terms of the agreement for supply of the aforesaid machinery to the plaintiff by defendant No. 1?
6. What is the effect of agreement dated 24-1-1981 between Mr. M. R. Bhalla and Shri R. R. Bhalla on the one part and defendants 2 and 3 on the other part for transfer of shares of defendant No. 1 vis-a-vis the agreement for sale of machinery in question?
7. Whether defendant No. 1 had placed orders with Swadeshi Engineering Company, Maya Puri for manufacture of 300 tonne Deep Drying Press to be supplied to the plaintiff and whether defendant No. 1 paid a sum of Rs. 60,000/- and supplied certain machinery parts valued at Rs. 91,482.95 to Swadeshi Engineering Company and if so, to what effect?
8. Whether the plaintiff were entitled to take delivery of the aforesaid machinery direct from M/s. Swadeshi Engineering Company and whether the plaintiff made any further payment to M/s. Swadeshi Engineering Company and if so, to what effect?
9. Whether issues 7 & 8 can be decided in the absence of Swadeshi Engineering Company and for that matter is not Swadeshi Engineering Company a necessary party to the suit?
10. Whether the plaintiff received one circuit cutting machine of the value of Rs. 23,500/- from defendant No. 1 under the aforesaid contract end if so, to what effect?
11. Whether the plaintiff is entitled to a sum of Rs. 2,30,017.04 (Rs. 4,05,000/- minus Rs. 1,51,482.96 and minus Rs. 23,500/-) under the aforesaid contract with defendant No. 1?
12. Whether the plaintiff is entitled to any interest and if so, at what rate and for what period?
13. Relief.
Issue Nos. 7, 8, 9 & 10.
11. The above issues were deleted vide order dated August 4, 1998 as per the statements of the learned counsel for the parties made on the said date.
Issue Nos. 1 & 3.
12. Both these issues are being taken lip together as the same can be conveniently disposed of at one and the same time.
13. The plaintiff in order to show and prove that the present suit is a properly instituted suit have examined PW 6, R.R. Bhalla. He has deposed to the fact that a resolution was passed through a meeting of the Board of Directors held on January 14, 1984, copy whereof is Ex. PW 6/3, wherein Shri R.K. Bhalla, Managing Director, was authorised to file a suit against defendant No. 1 for recovery of the remaining amount which was paid to defendant No. 1 by way of advance for the purchase of the machinery. To the same effect is the statement of PW 7 Shri R.K, Bhalla. Learned counsel on the strength of the said document and the above statements has vehemently contended that the present suit is a properly instituted suit and PW 7 Shri R.K. Bhalla is fully competent to sign and verify the plaint and to bring forward the present suit.
14. Learned counsel for the defendant, Mr. Ishwar Sahai, Senior Advocate, has urged to the contrary.
15. It is manifest from above that the learned counsel for the plaintiff Mr. Gupta while so arguing had drawn sustenance from the impugned resolution of the Board of Directors, Ex. PW 6/3. Thus Ex. PW 6/3 is the pivot round which the entire controversy with regard to the present issues revolves. A close scrutiny of the said document reveals that the Board of Directors while passing the said resolution authorised Shri R.K. Bhalla to file a suit against defendant No. 1 only i.e. Hindustan General Industries Ltd., Nangloi. There is no mention therein thai a suit be also instituted against defendants Nos. 2 and 3. Thus the learned counsel while construing the said resolution has tried to read therein much more than what is contained therein. I thus feel he cannot be permitted to do so in the eye of law.
16. Learned counsel for the plaintiff has contended that once a permission was granted to institute a suit against defendant No. 1 it implies thereby that the said permission can be treated and would be a permission against defendants Nos. 2 and 3 who are the Directors of defendant. No. 1. The contention of the learned counsel is without any force. Admittedly, defendant No. 1 is not a partnership firm. It is a corporate body with a separate existence inasmuch as it is an artificial person with a perpetual succession. It is not like a firm whose existence cannot be visualised in the absence of its partners. Thus it would be a sheer travesty to contend that the permission which was granted against defendant No. 1 can also be treated as permission against defendants Nos. -2 and 3 as well. Thus it can be safely concluded from above discussion that the present suit is not a properly instituted suit against defendants Nps. 2 and 3.
17. It has been urged for and on behalf of the plaintiff that the order for supply of goods was placed on defendant No. 1 and advance payment was also made in connection therewith by the plaintiff to defendant No. 1. Defendants Nos. 2 and 3 stood as guarantees for the proper execution of the said contract, being the Directors of defendant No. 1. Hence, in case of the failure of defendant No. 1 to return the said advance payment the same can be recovered from defendants Nos. 2 and 3. Learned counsel for the plaintiff Mr. Gupta has placed much reliance to substantiate his contention on Clause VI of the agreement dated January 24. 1981 (Ex. PW6/1).
18. Since we are concerned with the construction of the said clause it would be just and proper to carefully examine the said clause before proceeding any further in the matter which is in the following words :–
“The vendees have undertaken and bound themselves to ensure that the Vendors are not made liable for any past, present or future liability, financial towards Banks. Govt. Bodies, Railway Board or any one else having claim against the Company. They will indemnify the Vendors if they for any reason whatsoever are called upon or made to pay.
19. Learned counsel inspired by the said clause contained in the aforementioned agreement has vehemently contended that the said clause is sufficient enough to fasten the liability on the head of defendants Nos. 2 and 3 in case of failure of defendant No. 1 to make payment. Learned counsel for defendants. Mr. Ishwar Sahai and Mr. Jaishi Ram Goyal, have on the other hand, argued that learned counsel for the plaintiff has construed amiss the Clause No. vi alluded to above. According to them, there is absolutely nothing in the. said clause to assist and help the plaintiff to recover the alleged advance payment made by them to defendant No. 1.
20. Let us now see as to on whose side the truth is? Admittedly the impugned agreement Ex. PW 6/1 is an agreement in between Shri M.R. Bhalla, Chairman of M/s. Hindustan General Industries Ltd. and Shri R.R. Bhalla. Managing Director of M/s. Hindustan General industries Ltd. as the vendors on their own behalf and on behalf of their friends, relatives, other directors and associates, who are registered shareholders of M/s. Hindustan General Industries Ltd. and defendants Nos. 2 and 3. The said Shri M.R Bhalla and Shri R.R. Bhalla and other shareholders sold majority of their shares through the impugned agreement, in favour of defendants Nos. 2 and 3. Thus the said agreement in between Shri M.R. Bhalla and Shri R.R. Bhalla is in their individual capacity to sell their shares in the defendant No. 1 company to defendants Nos. 2 and 3. Thus it there is any breach of the said agreement the same would give rise to a cause of action in favour of Shri M.R. Bhalla and Shri R.R. Bhalla to bring forward a suit from defendants Nos. 2 and 3. The plaintiff admittedly is a legal: entity. It was not a party to the impugned contract. Hence the plaintiff would not be entitled to claim any amount through the present suit against defendants Nos. 2 and 3
21. There is another aspect of the matter. A close scrutiny of Clause vi of the agreement referred to above would reveal that it simply envisages that in case the vendors were required to pay anything to the authorities mentioned therein the said liability was to be met by defendants Nos. 2 and 3. Admittedly, the plaintiff are not being required to pay anything to the above said authorities. Thus the same cannot be claimed from defendants Nos. 2 and 3. Moreover, the present suit can be no stretch of imagination be treated as a suit for breach of the contract. Consequently no action is maintainable under law as per the terms of the said clause against defendants Nos. 2 and 3. It can be safely concluded therefrom that there is no privity of contract in between the plaintiff and defendants Nos. 2 and 3.
Issue No. 2
22. Learned counsel for defendant No. 1, Mr. Ishwar Sahai, Senior Advocate, has urged with all the vehemence at high command that the present suit is hopelessly barred by time. According to the learned counsel the present suit has been filed for recovery of the remaining advance payment which was alleged to have been made by the plaintiff to defendant No. 1 in connection with certain machineries which were to be supplied by defendant No. 1 to the plaintiff which they failed to do. According to him the present case is to be governed by Article 13 of the Limitation Act. Article 13 of the Limitation Act provides that when a suit is filed for the balance of the money advanced in payment of goods to be delivered then the period of limitation would start running from the date when the goods ought to have been delivered. Learned counsel for the plaintiff, Mr. Gupta, on the other hand, has urged to the contrary. According to him the suit is well within time inasmuch as the same was filed on January 20, 1984 i.e. within three years from the date of the execution of the agreement dated January 24, 1981 (vide Ex. PW6/1)as the period of limitation (which is three years) would start running from the date of the agreement. Learned counsel in support of his argument has led me through Article 113 of the Limitation Act which deals with a contingency when there is no period of limitation provided elsewhere in the schedule under the Limitation Act.
23. I am sorry I am unable to agree with the above contention of the learned counsel for the plaintiff. It is manifest from Article 113 of the Limitation Act that the said Article would come into operation only in those discerning few cases where there is no limitation provided in the Schedule under the Limitation Act. In such an eventuality the three years period would be computed for the institution of the suit from the date when the right to sue accrues. Admittedly the present suit has been filed for recovery of the balance amount which was paid as advance for the purchase of certain goods. Hence the proper Article which will govern the period of limitation in the present case would be Article 13. I am tempted here to reproduce the provisions of the said Article in support of my above view. It envisages, “For the balance of money advanced in payment of goods to be delivered the period of limitation would start running from the date on which the goods ought to have been delivered.” The plaintiff placed the order on the defendant No. 1 vide their letter dated November 2, 1979 (Ex. D1). The said order was for the supply of as many as six machines mentioned at Sr. Nos. 1 to 6 in the body of the said letter. One of the said machines was Deep Drying Press 300 Mt. Capacity, referred to at Ms. No. 1 of the letter, which is the bone of contention in between the parties. One of the stipulations of the said order was that the machines were to be supplied within three months from the date of the order. Thus the said machines were in be supplied by February 2, 1980. If the period of limitation is to be computed from the said duet then the suit should have been filed on or before February 2, 1983. There is no dispute with regard to the placement of the said order on the said date This fact has been admitted by PW 6 Shri R.R. Bhalla in his examination-in-chief. He has got this to say on this point. “The quotation submitted by defendant No. 1 was accepted by the plaintiff vide agreement dated November 2, 1979 which is Ex. D1” Thus the facture of the acceptance of the order on the terms and conditions enumerated in the letter dated November 2, 1979 (Ex. D1) is very much admitted by the plaintiff. Hence they cannot wriggle out of their words. They are very much bound by them. Thus the period of limitation in the present case would commence running from February 2, 1980 and it came to an end oh February 2. 1983. The present suit was filed on January 20, 1984. Hence the suit is barred by time.
24. Learned counsel for the plaintiff in his anxiety to bring the present suit within, time raised different pleas during the, course of his arguments. However, they are of no avail to him. Para 9 of the plaint deal with the question of limitation. The plaintiff are very much bound by the averments made therein. It has been stated therein that since the defendant acknowledged their liability to supply the machinery vide agreement dated January 24, 1981. Consequently the period of limitation would start running from the said date and if three years are so counted from the said date then the suit is well within time inasmuch as the same was filed on January 20. 1984. The contention of the learned counsel does not hold any water. The said agreement in between the parties is with regard to the sale and purchase of the shares. Defendants Nos. 2 and 3 vide the said agreement agreed to purchase majority of shares held in the defendant No. 1 company from its erstwhile Chairman and Managing Director and other shareholders i.e. Shri M.R. Bhalla and Shri R.R. Bhalla. Thus the said agreement has absolutely got nothing to do with the supply of the machineries.
25. Learned counsel for the plaintiff has then contended that the defendant No. 1 made payments to the plaintiff on different dates. The same is tantamount to acknowledgement of liability. The period of limitation would commence from different dates on which said payments were made. He has in this connection referred to the entries in the books of account of the defendant in connection with the account of the plaintiff. The said entries are Ex. D3 to Ex. D12. The said entries are not tantamount to the acknowledgement of liability. The last entry in connection therewith is dated December 11, 1980 on which date payment of Rs. one lac was made to defendant No. 1. The said payments have been adverted to in para 3 of the plaint. Assuming argue do, even if the period of limitation of three years is computed from the last payment still the present suit is riot within time inasmuch as the same was filed on January 20, 1984.
25A. Learned counsel for the plaintiff has then during the course of his arguments also tried to seek sustenance from a letter dated January 23, 1981 written by Shri Raj Rattan Bhalla who was then acting as the Managing Director of defendant No. 1 company to the plaintiff (vide Ex. PW6/2) wherein there is an acknowledgement that a sum of Rs. 3,81,500/- is due to the plaintiff from the defendant. Learned counsel for the plaintiff has argued on the basis of the said letter that it is a clear case of acknowledgement of liability. Hence the period of limitatio’n should be computed from the last date. The contention of the learned counsel at first blush may appear to be of some substance but on a deeper scrutiny and read in the light of the subsequent events is without any merit. Admittedly the said letter was written on January 23, 1981 by Shri Raj Rattan Bhalla then Director of the defendant No. 1 to the plaintiff wherein he stated that a sum of Rs. 3,81,500/- was due to the plaintiff from the defendant. However, on the next day in the agreement dated January 24, 1981 (vide Ex. PW6/1) to which Shri Raj Rattan Bhalla is a party there is a reference to the advance payment made by M/s Raj Cylinders (Plaintiff) to defendant No. 1 and it is shown to be in the neighbourhood of about Rs. 3 or 4 lacs vide Clause VII of Ext. PW6/1. In view of the above the question which comes to the tip of the tongue is as to why an exact figure of the advance payment did not find a mention in the agreement dated January 24, 1981 which was of a subsequent date when it was known to Shri Raj Rattan Bhalla on January 23, 1984 that an exact amount of Rs. 3,81,500/- had been paid by the plaintiff to the defendant. This goes to show that the said letter had been fabricated by the plaintiff in collusion with Raj Rattan Bhalla, son of Shri M. R. Bhalla who was the Managing Director of the defendant No. 1 company during those days. In view of the above discussion I am of the view that viewed from any angle even then the suit filed by the plaintiff is not within time. It is hopelessly barred by limitation. Issue No. 2 is decided accordingly.
Issues NOS. 4, 5 and 6.
26. All the above three issues are interconnected, hence they are being taken up together for the purpose of disposal as the same points are to be gone into while disposing them of. Learned counsel for the plaintiff in order to show and prove that the contract with regard to the supply of deep drying press was entered into on ‘no profit no loss’ basis has led me through the agreement dated January 24, 1981 (vide Ex. PW6/1). It is true that there is a mention in the said agreement with regard to the sale and purchase of machinery on ‘no profit no loss’ basis. The learned counsel on the basis of the said recital in the said agreement wants this Court to conclude therefrom that the impugned machinery was to be purchased by the plaintiff on ‘no profit no loss’ basis.
27. Learned counsel for the defendant, Mr. Ishwar Sahai, Senior Advocate, has refuted the said contention. He has contended that the said agreement dated January 24, 1981 (Ex. PW6/1) was for the purchase and sale of the shares. Defendants Nos. 2 and 3, the directors of defendant No. 1 now, wanted to purchase the majority of the shares of defendant No. 1 from Shri M.R. Bhalla, then Chairman of the defendant No. 1, and Shri R. R. Bhalla, Managing Director of defendant No. 1, vide the impugned agreement. Defendant No. 1 which is accompany was in no way connected with the said agreement. In fact, it has got absolutely nothing to do with the same. Hence the mention therein that the machinery was to be supplied On ‘no profit no loss’ basis does not lead us anywhere. It is a recital which has got no meaning and has got no bearing. The said agreement was by Shri M. R. Bhalla and Shri R. R. Bhalla in their individual capacity and thus could not have (bound the defendant No. 1. The obligations which arose out of the said agreement and which defendants Nos. 2 and 3 took to perform for the benefit of Shri M. R. Bhalla and Shri R. R. Bhalla were their personal obligations. The said obligations cannot be so stretched as to bring within their domain the defendant No. 1. If there is any grievance of Shri M. R. Bhalla and Shri R. R. Bhalla for the non-performance of any of the covenants they can seek no doubt a dressily of the said grievance against defendants Nos. 2 and 3. However, they can do so in their personal capacity. Further more, a forum was also settled for there dressily of the grievances, if any, through arbitration and an arbitrator was to be appointed by mutual consent who was to be a person not lesser in rank than a retired Judge of a High Court. Thus the said parties are bound by the said term in the agreement. In view of the above the said agreement dated 24th January, 1981 vide Ext. PW6/1 is of no avail to the plaintiff.
28. There is another side of the picture. It has already been observed above while disposing of issue No. 2 that the plaintiff vide their letter dated November 2, 1979 (Ex. D1) accepted the offer made by defendant No. 1 for the supply of machines. The terms and conditions enumerated in the said letter cannot be changed subsequently to the detriment of defendant No. 1 through the agreement dated January 24, 1981 (Ex. PW6/1) which is pure and simple an agreement for the sale and purchase of shares of defendant No. 1 company. Defendant No. 1 company neither passed any resolution to the effect to supply machinery on ‘no profit no loss’ basis nor it could have passed any resolution to its detriment at the meeting of the Board of Directors. Furthermore, defendants Nos. 2 and 3 could not have participated in any such meeting in which they were interested in view of the clear cut provisions of Section 300 of the Companies Act, 1956. The provisions of Section 300 can be referred to with profit. It runs as under:–
“(1) No director of a company shall, as a director, take any part in the discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any way, whether directly or indirectly, concerned or interested in the contract or arrangement; nor shall his presence count for the purpose of forming a quorum at the time of any such discussion or vote; and if he does vote, his vote shall be void.
(2).,……………..”
29. Admittedly, defendants Nos. 2 and 3 wanted to purchase the majority of the shares of defendant No. 1. Thus with the said end in view must have entered into an agreement dated 24-1 -81 vide Ext. PW6/1 on certain terms and conditions with Shri M. R. Bhalla and Shri R. R. Bhalla. However, the said terms and conditions by no stretch of imagination would be deemed to be binding on defendant No. 1 particularly when the said terms and conditions are to the detriment of defendant No. 1. It can thus be held that defendant No. 1 never agreed to supply the machineries on no profit no loss basis to the plaintiff.
30. It thus brings us to the question as to whether a sum of Rs. 4,05,000/- was paid by the plaintiff to defendant No. 1 by way of advance for the purchase of the machinery as alleged in para 3 of the plaint. Out of the 14 payments which find a mention in para 3 of the plaint the defendant No. 1 have challenged only the four payments i.e. the payments of Rs. 30,000/- dated November 2, 1979, Rs. 20,000/- dated May 7, 1980, Rs. 35,000/- dated August 10, 1980 and Rs. 17,000/- dated November 10, 1980. Besides the above the plaintiff have also, alleged the receipt of Rs. 12,000/- from defendant No. 1 though the same has been denied by the defendant.
31. The plaintiff in order to show and prove that in fact they made the said payments have placed on record receipts Ex. PW471 dated November 10, 1980 in regard to payment of Rs. 17,000/-, Ex. PW472 dated August 10,, 1980 for Rs. 35,000/-, Ex. PW 473 dated May 7, 1980 for Rs. 20,000/- and photo copy of the receipt dated November 2, 1979 in the sum of Rs. 30,000/-. Learned counsel further contends that the said receipts are on the letter-head of defendant No. 1. The said receipts bear the initials of PW 4 Shri P. K. Bhalla, a Personnel Officer of defendant No. 1. PW 4 Shri P. K. Bhalla has further deposed to the fact that he dtd receive the payment for and on behalf of defendant No. 1 and issued the said receipts in token thereof. Learned counsel has then urged that the said payments are also duly reflected in the account books of the plaintiff company which have been placed’on the file of this Court. Learned counsel in this connection has led me through the cash book which was being maintained at the relevant time by the plaintiff company, the extract whereof is Ex. PW2/1. Hence the learned counsel wants this Court to draw a conclusion therefrom that the said payments were duly made to defendant No. 1 and as such they are liable to refund the said amount to the plaintiff.
32. Learned counsel for the defendant Mr. Ishwar Sahai or the other hand has argued that the said receipts are forged and fictitious. The entries made in the cash book (vide Ex. PW2/1) are not worth placing the reliance thereupon; Entries relating to the said payment are also forged and fictitious inasmuch as no such payment has been shown to have been made to defendant No. 1 during that period as is crystal clear from the accounts of defendant No. 1 which have been placed on the record (vide Ex. D3 to Ex. P19).
33. I have heard the learned counsel for the parties on the above point and have very carefully examined their rival contentions and have given my anxious thoughts thereto.
34. It is in the statement of PW 4 Shri P. K. Bhalla that defendant No. 1 maintained proper receipt books. The said receipt books contain serial numbers. The impugned receipts, admittedly, are not from the said receipt books. It creates serious doubts with regard to the authenticity of the said receipts. The said receipts were typed at the residence of Shri M. R. Bhalla, father of Shri R. R. Bhalla (as per the statement of PW4 Shri P.K. Bhalla).
35. Shri P. K. Bhalla (PW 4) is a highly interested witness inasmuch as he is a close relation of Shri M. R: Bhalla and Shri R. R. Bhalla. He has admitted this fact with commendable fairness on his part during the course of his cross-examination. He has got this to say on this point that his father and Shri M. R. Bhalla, father of Shri R. R. Bhalla, are cousins. Though this fact has been denied by PW 6 Shri R. R. Bhalla in his statement on oath.
36. Shri P. K. Bhalla (PW 4) has admitted during the course of cross-examination that being the Secretary of the defendant No. 1 company he was not supposed to receive the cash. However, he could have received the same in case of urgency. Later on, on being asked as to what was the urgency, he has contended himself by pretending his ignorance. This fact further becomes relevant in view of the fact that on being asked he was unable to tell that he ever issued any such receipts like the impugned ones for any amount to anybody else.
37. PW 4 Shri P. K. Bhalla has deposed to the fact that the impugned amounts were handed over to him by Shri M. R. Bhalla in the year 1980 and he was asked to issue receipts in token thereof in the name of the plaintiff company. The said statement is contradictory to and inconsistent with the statement of Shri R. R. Bhalla (PW 6) who has averred on oath that Shri P. K. Bhalla. Secretary of defendant No. 1, used to come to his residence to collect the amount from him and he made all the payments to Shri P. K. Bhalla in the presence of his father and secured the receipts in token thereof from him. On the other hand, Shri P. K. Bhalla (PW 4) does not talk of the presence of Shri R. R. Bhalla when the payments were made to him by Shri M. R. Bhalla.
38. PW 4 Shri P. K. Bhalla has asserted in his statement on oath that the amounts received by him vide receipts Ex. PW 4/1 to Ex. PW4/3 might have been handed over by him to the persons working in the Accounts Department. In this connection he has mentioned the names of three persons as Mr. L. B. Sharma, Mr. Balbir Singh Chaudhary and Mr. A. S. Verma. Shri A. S. Verma has appeared before this Court as DW 1 According to him whenever he received any payment he had invariably, made an entry to that effect in the account books. Admittedly no entry is there in the accounts books ol the defendant No. 1 with regard to the payment of the said disputed amounts.
39. Ex. PW 4/3 is a receipt dated May 7, 1980 with regard to payment of Rs. 20,000/-. A close scrutiny of the same reveals that the said amount was received vide cheque No. 283910 dated May 7, 1980 drawn on the New Bank of India, Tolstoy Marg, New Delhi, on account of payment in connection with the order dated November 2. 1979. Photocopy of the said cheque is Ex. PW 1/ 3. A careful scrutiny of the same reveals that the said cheque was drawn in favour of self by Shri R. R. Bhalla as admitted by Shri R. K. Bhalla (PW 6). The amount was received by him as his signatures appears on the back of the said cheque. It thus does not appeal to the reason as to how and in what manner Shri P. K. Bhalla issued the receipt Ex. PW 4/3 for the payment of the said amount through a cheque (vide para 3 of the plaint and again reiterated vide paras 2 and 3 of the reapplication). Even if it is assumed that after the encashment of the said cheque the payment was made by Shri R. R. Bhalla to Shri P. K. Bhalla in that eventuality the said receipt should have been a receipt for cash and not for cheque as shown in para 3 of the plaint and paras 2 and 3 of the replication.
40. Another payment i.e. for Rs. 35,000/- is alleged to have been made in cash vide receipt Ex. PW 4/2 dated August 10, 1980. There is an entry to that effect in the cash book of the plaintiff company vide Ex. PW 2/1. PW 2 Shri B. N. Chadha has got this to say on this point during the course of his cross-examination “Shri Raj Rattan used to tell me about the transactions within a day or two of its occurring. Thereafter, I used to make entry in the account. No payment has been made in my presence.” He was working as part time Accountant. Shri Raj Rattan Bhalla was the Chairman of defendant No. 1 company. Shri Raj Rattan Bhalla became a, director of the plaintiff company on February 6, 1981 (vide his statement in his cross-examination):. Admittedly all the alleged impugned payments were made prior to his becoming the Chairman/Director of the plaintiff company. Hence how he could have made the payment on behalf of the plaintiff. This goes a long way to show that the account books of the plaintiff company have been forged and fabricated.
41. The third receipt is with regard to the payment of Rs. 17,000 (vide Ex. PW 4/1) in cash as is manifest vide para 3 of the plaint. However, this fact is contrary to the evidence on record. The said payment is alleged to have been made through a cheque vide Ext. PW 1/1. The said cheque is alleged to have been issued by Shri Raj Kishan Bhalla, Director of the plaintiff company payable to self or the bearer. It was encashed by Shri R. R. Bhalla. It is in the statement of Shri R. R. Bhalla that a cheque for Rs. 17,000/- dated November 10, 1980 was received by him on behalf of defendant No. 1 and got it encashed. The amount was handed over by him to Shri P. K. Bhalla who issued a receipt. It has been further admitted that the cheque for Rs. 17,000/- was a bearer cheque and was issued by his brother on behalf of the plaintiff company. Surprisingly enough this fact is not borne out from the record.
The fact that the alleged payment was made through a cheque also does not find a mention in the receipt Ex. PW 4/1 dated November 10, 1980. This fact moreover is contradictory to the statement of Shri P. K. Bhalla PW 4. He Has averred through his statement on oath that Shri M. R. Bhalla was the Chairman/Managing Director of defendant No. 1 that whenever the Company needed finances they approached him. The Company requested him for money in the year 1980. He gave the requisite money and directed the receipt to be issued in the name of the plaintiff. He accordingly did the same. It is further very much surprising as to why the said cheque was not issued in the name of defendant No. 1 though the payment is alleged to have been made to the defendant No. 1 company. The plaintiff admittedly is a limited liability company. Thus in the normal course of business it is expected that a company would make payment to another company only through cheque and not in cash. This is not likely, to happen particularly when a company deals with another company in connection with business transactions and when both the companies are having their accounts in banks in Delhi. ,
42. It is an admitted case of both the parties, as per Ex. PW 6/1 (i.e. the agreement with regard to the sale of shares) that accounts were complete up to April, 1980. The accounts thereafter were to be completed under the new management which came to the hands of defendants Nos. 2 and 3. A perusal of the entries in the account books of the defendant reveals that there are entries for the payments made by the plaintiff in cash as well as by cheque after April, 1980. However, the entries with regard to the disputed payments are missing therefrom. Thus it does not appeal to the reason as to why no entries were made with regard to the payments in question in the account books of defendant No. 1.
43. This brings me to the 4th payment of Rs. 30,000/- (vide mark A). The said document was not got exhibited. Thus it cannot be read in evidence. However, while dealing with it I would like to observe that the said payment has not been recorded in the account books of defendant No. 1. For the reasons stated above no reliance can be placed on the said receipt. Had the said payment been made it would have definitely found a mention in the account of the plaintiff particularly when other payments have been duly reflected.
44. It has next been urged by the learned counsel for the plaintiff (vide para 3 of the plaint) that a sum of Rs. 12,000/- was returned by defendant No. 1 to the plaintiff in cash on November 13, 1980. The said payment of Rs. 12,000/- has got no bearing on the facts of the present case. I thus need not dwell on this point except to the extent that there is no entry with regard to the return of the said amount in the books of account of the defendant No. 1. Furthermore there is absolutely no evidence on record to show as to in what connection the said amount was returned to the plaintiff in cash on November 13, 1980 when a sum of Rs. one lac was paid to the plaintiff by the defendant on December 9, 1980 (as is manifest from para 3 of the plaint). Thus this Court is not prepared to believe the plaintiff on this point also. It can thus safely be concluded that only a sum of Rs. 3,15,000/- was received by defendant No. 1 from the plaintiff and not the sum of Rs. 4,05,000/- as referred to in para 3 of the plaint.
45. The case of the plaintiff as set out vide para 2 of the plaint is that defendant No. 1 company after oral discussions held on October 26, 1979 submitted a quotation for LPG cylinders, plaint arid machinery. The said quotation was followed by a letter dated August 2, 1980 as a revised quotation which was accepted by the plaintiff. On the other hand, the case of the defendant is that defendant No. 1 submitted a quotation vide letter dated October 26, 1979 and the plaintiff accepted the same vide letter dated November 2, 1979 (Ext. D1). It has been denied by defendant No. 1 that they gave a revised quotation dated August 2, 1980 which could have been accepted by the plaintiff. It has also been denied by the defendant to have agreed to supply the 300 tonne Deep Drying Press on no profit no loss basis. This Court while dealing with other issues has agreed with defendant No. 1 on this point. Surprisingly enough the plaintiff have placed on record the said revised quotation dated August 2, 1980 from the defendant to the plaintiff wherein the price of the impugned Deep Drying Press has been shown as Rs. 4,25,000/-. However, for reasons best known to them the said revised quotation was not got proved. Hence the same cannot be looked into and is not even worth the paper on which it has been typed. Though there is a denial with regard to the receipt and acceptance of the letter Ex. Dl dated November 2, 1979 in the plaint. However, the said fact that the order Ex. Dl was placed by the plaintiff on defendantNo. 1 has been accepted by PW 6 Shri Raj Rattan Bhalla. Thus there is a variation in between the pleadings and the proof. The allegations and the averments in the plaint are quite contradictory to the evidence of PW 6 Shri Raj Rattan Bhalla. Thus the plaintiff have miserably failed to prove the terms and conditions on which the impugned machine was to be supplied. Ext. Dl shows that the plaintiff made a payment of Rs. 3,15,000/- only in connection with the supply of machines. Hence the plaintiff are bound by the same.
46. Ex. PW 671 i.e. the agreement dated January 24, 1981 is of no avail to the plaintiff in order to show and prove that the impugned machine was to be supplied on no profit no loss basis. As already observed above the said agreement is with regard to the sale and purchase of shares in between S7Shri M. R. Bhalla and R. R. Bhalla and other shareholders on one side, and defendants Nos, 2 and 3 on the other. That is not a contract in between the plaintiff and the defendant No. 1. Hence the same is of no avail to the plaintiff as stated above. All the three issues are decided accordingly.
Issue Nos. 11. 12 and 13
47. In view of the above the plaintiff are not entitled to the recovery of the sum of Rs. 3,54,217.04 from the defendant. The plaintiff arc also not entitled to any interest. Thus they are not entitled to any relief whatsoever. The suit of the plaintiff is accordingly dismissed with costs quantified at Rs. 12,000/-.