G Shyama Bhat S/O Ishwara Bhat vs Karnataka Vyavasaya Varthaka … on 7 December, 2009

Karnataka High Court
G Shyama Bhat S/O Ishwara Bhat vs Karnataka Vyavasaya Varthaka … on 7 December, 2009
Author: N.Kumar And C.R.Kumaraswamy




THE HONBLE2 MRJUSTICE C.ra.KuMARAS.--ii2\}'A;$/ififf'   

REGULAR FIRST APPEAL Ns;3.1.ioif.éd4O'i'7; »'   


Sri. G Shyama Bhat.

S/0 Ishwara Bhai.

Now residing at Man.r'ia..If1ga«iVa " 
Panaje, Puituri * .' _   AA 
D.K. district.      Aiapeiiant.

(I-3y Sri. K M  V

1 Karr1.é1i.rak.a V'.y2ir1Jé1s.;i'ya Va rizhaka
Sélllghéli L3é.d:."Arisa1'i Road

»~'Bi11i'de1'._ M'ziz'1_g_&1lv()1*c?-- 1.

' V.V"'.R€Ephi'€§€I1tCfd by its Manager

 .SI'i,. 'B'«S ''I"3__an.sari

"  S','_Q"=a\_/é: r1"k,a:.iran1ana Bhat

- '-ReSi'cl'i'ng[:=at Mangaiore

 Sri_. 3~I~{ Govinda Rao

AA ;,_S/0"' Ramappayya
" Residing at Field Street

M&1IlgEiiO1'€*}. k//

3 Sri. P B Anduiitrh
S/0 Araby
Merehaiit. Major
Residing at KLikkuj::1dka
Sullia Taiuk. Kukktijadka
D.i{. disirict..  Respondents

(Sri. M.C. Ravi Kumari Advocate
For Ravi and Ravi, Advocates for 1’esp0ndeh’i.»Nrj’;._1.}..
isms RFA M;fHed under_scpuon”9s oi cps ”
against the Judgment and Decree datieci-:’2.3.’1_.2001
passed in O.S.N0. 86/83 by the 13$”e.A;Vddii.ti’01’ialV’

Judge, (Sr.Dn.] and CJM, Maiigaioife. dee_’ife’evir’1g’=.the V’
suit [er recovery of money’._

This appeal coming 0nd»VV”!](:)1′,_heai’indg’ this day,
N.Kumar J., d€1iV€I’€v(–3i.jVjh€’fb’ii’O.)}$’i}Tg.I*


Th_1__s…. Ci’:€*ii’eii”c!.ei’nt’s””‘a’i)pea1 against the
judgmefzi and _de:,c’?r.e”e.._.tis£T,_the Trial Court which has

decreed thegsuit’0_f”i:.he~…’}5iainiiii as prayed for.

‘ “«.F”0ii”~.ti’ie purficise 01’ eoiiveiiieiice. the parties

are_d_i’Veefe:i’»§e’d.\ aid. their ranks as referred to in the


‘V3. ‘The,Vpiair1tiff is a joint stock Company

:ie~I1e0i<p0i'Vat'ed under the Indian Companies Act. It



is carrying on the business oi’ Commission Agency
in agricuitural produce such as arecanuts.
coconuts. plaintins, banana. pepper. cardamom
and forest produce.

The first defendant was
Managing Director as per resoiutiori
15.09.19″75. He continued ivthxe
Director unit} he resign»ed
Generai Administration of
in him. subject to.’:t’h«_e theVV”BAo’ard of
Directors in Rates and

Regu1ations.”i:_ie’– had the grant loans

upto Rt3A_1300/;i’fwithj”Qr””–u?ithout. security. Without

the express'”peei9’ini’s.s1″o«ri=of the Board of Directors.

the had to powers to grant

ioagas, _Vo.r–_t*o give credit for sums exceeding

‘~d.3’i*lx.e had no powers to mortgage or

V.hypo’the–..catve’; the properties or assets of the

.coAn1ipan’y. without express permission of the Board

ite._of_VV”Di’rectot*s. The Board of Directors of the

“p-iaintiff” usualiy meet oiice in a month. During



such meetings at} decisions regarding granting of
loans or advances or providing credit faciiities
would be taken. The Managing Director was
expected to placebefore the Board of Directorsaii
the papers for their consideration. The B::)a’rfc_”ip:<.V:of'
Directors with the advice and V'
defendant. the Managing Dir.cc~:t»o'rp
second defendant. who is
would take decisions. V t V t M
The second defendaI1t:o.i.s:.tvhe'-,Chiei"ficcpoitintant

of the company. down in an

order dated 1.8_;'O§'«L Directors.

His duhvtpies and':':'..r4es,pVo.risibilities as per the said

I'€SO1L1?LiO1'Vi".._"'()f ".B_.oard of Directors were.

..V.inte1ra31iat'.* to"':31ai1it,airi correct and up-to–date

AXacc«oants;_*,p'i'.epare and submit, quarterly tria}

b"a1a.n_ce"tog._th,e"V.Board. to prepare and submit fina}

_ bata'.t1ce"—V:'G.h'e'ets to the Board, to watch the working

the Depots. to submit, reports to the Manager

_'=_ar1_d"'i:he President regarding any irregtiiarities. to

"hcheck all the slips prepared for each payment of


amounts after verifying the eorre(:i.ness and
regularity of such proposed payments. to submit
regular siaiuiory reiurne. to make payment of
various taxes and fees etc. And he should sub..ini£
to the Board all the consignors debit.
which are more than one year old M

carry out all the resolutions voi””i;-he l3oav.rjd’:’arid–f!.1e’-.&

must report the action iaken s.ho.Tu}d’i

distribute work among ih_e~.__s1ai”i” _ arid s}”i;1f)”eir\rise
their Work. In short. his. :A'(:lv1,_1’Ii),{ waé; ~I,o Hgéee all
firiancial transactioris~’jb.e’ir1§§V}carii.ed._ or: properly

and in aCco1’da:2–ee wj’i’h’»–i.aw”ai1d 1″.eso’.Eutions of the

Board to report about any
irregulaivtie–s or {he Board.

‘l”he_ l3o.a1.’.vCi”o’i1′ [5i1’ewc1,ors of the plaintiff during

1-l l}-1e 1982 were agrieuliurisis

2′::_.3éEod.iVng:’=i_An” Villjages. who had no knowledge about

marketing_o.rAladminis1′.ration of the company. The

ill.’-‘«._’Vi7.i1’St d’eVi_fendant is a law graduate and holds a

v.’C’_O’fI’lf’f1A’€1’C(‘3 Degree and is liaving expert. knowledge

practical skill in marketing and


admiriist.rat’ior1 of the (‘.OI}’1;)’c11’}_V. The Board of
Directors had piaeed absolute faith and trust in
him. The second defendant who has served in the
Accounts Department for several years

trusted officer of the plaintiff. Compariy. __’1″he-«tie-i:o’ire_4_’*_

the Board of Directors had no 1’easor.–.t:.ogsu:sp_eet'” ‘

the Conduct and activities of the

2: 0 fl

2. After the resigriatiori
03.03.1982 the Board or D’iv’r’e:.et.()_r-S alppraise
themselves of the by
closely examining of the
company. f.:f§f1(3jJi{r10\Af several
unsavozvtiirti :ovi’«VV.:’_’theihdadihiiiistration of the
eompar1zyvVVat defendants 1 and 2

Co1luSI’Qn of the defendants. The

aiid'”2″;”Vthe Managing Director and the

°~_’:h’ie.i’¥.}3s;«<;eoi;.i1i'ai1t. respecftiveiy. had Conducted

themse1v_es7L_iri such a manner that there was

appare~~nti;_y no room for suspicion. and the Board

_Di'i'=«eetors concerned themselves with the papers

V___""pei;taining to the admiriistration placed before

u",i.hem. The Board of Directors were therefore


I07 lend


shocked to find defendariis l and 2. misusing the
trust. and confidence reposed on them have had a

deep laid plan for rnaking illegal gain against»-__t_he

interest. of the plaint.il'f company. The
1 and 2 colluded together and acE'ed-:4':iilleg.é§'lEy1V_""e V'
unlawfully and contrary to

and the Memorandum and Ar1"iycle__s"'loI'l'As's;.ociav€;":'o_n~l_y

of the Plaintiff Company. V» .

On 27.06. 1980 1’é’1%’§’t_f djefelndantHlpnrported
to have advanced to the :_t.hlii’rd: a sum of

Way Bill

Rs.94»,600/~ o’_w51’~th;:_ §bérsi-s ”
l\lo.78398 was purported
to haye 21 Transport Agency

M/S.S.A.S”.,__alnVdVx:3_o4ns; yTS_.ull1a. On verification of all

___.1,he yreqleve1nt’ registers it is found that
as noted in the said way bill

by the plainiiff company. ll. is
l _qui’Le– clveizilrvldillronl the records that the defendants 1,
.an_.d u3″*’have colluded among ixhemselves and have

_fl_b”r_o’ug’ht about among t.l1en1selves certain records

colour of credibility to the said




transaction. The first defendant appears to have
taken a typed let.ter from the third defendant.
wherein a request. was made for advance to him a
sum 01′ Rs.9-4._600/wagainst the security of-“ul_»OO
bags of arecanuts alleged to have been
by him as per the aforesaid Way
from Kukkujadka. The first
appears to have obtained;l’:’.Va’n_l
Promissory Note dated the
third defendant and zone lVAb.ral’ti.in*i.._Ku.n’ch.iA, per
the prevailing practice of

such a huge loarreou-l’d'”n:oi hA.§t*’54″€ given by the

first deg’hten’danf.i the sanction of the Board
of Directors. amount could be

disbursed ‘tAh€V’Tl3OUnd€i1 duty of both t.he

xi’d.ei’e”ttria:r1«ts’vi.A.1 to check up and satisfy

the goods noted in the way bill

hadylhheenyliteceived by the company. And it is the

__4’u_.sual pra_ctic:e to note in the Debit Slip the actual

oi’ the goods standing to the credit of the

‘V”=.___””.’pei:son who took the loan. The receipt of all the

“consignments are always recorded in a specific


register. And there is a register kept at the
godown of the Company known as Inward
Weighmem Register. And in the office there is
another inward Weighmenl. Register I’1″1E1i1’11,vEV).§’,!I’:.1r€,(.L1.
in both the Inward Weighment
receipt. of all consignments are
particuiar consignment of IOQJ'”o1′
on the security of which a».s.t1n1A:4o.fd:’Re.9éi.iV£3d’O,/L
advanced was not written V. oi”

Rs.94,600/~ to the t.h”i~r_d edx/divdenjced by
the Debit Slip No.2dVd’ett:eVd’i”‘ and the

ledger entry _..o.i7.c:Vt’_’he ” Pfijjart from the

above fudrdther and subsequent
advances defendant to the third

defeiidaiit or; v_VE1’:’Vi.f()Ll.E~’J: dtttes without the sanction of

did”-the 1)1§?e'<:':'o'i~ and finally as on 31.07.1982

found due from the third

deienddantddyrdyets Rs.1.23.225/~. The above said

H,,__,4itrarlsactdions were kept out of the knowiedge of the

"§o.ard=_.of Directors and indeed were never brought

V"=._,.j""'toV'[;the notice of the Board of Directors in their

'Wmeeting. There was no occasion for the Board of


the defendants 4 and 5 appear


Directors to know these transactions and the first

defendant. under the rules Could not have

sanctioned the above loans. The second defendant

who is a responsible officer in the pIaiy’h—-t;iff

company ought to have brought this n1atte.r_ll*!.o’thle-«V
notice of the Board of Directors of the’helloiripanlyiii
He has kept quiet and he has””le’o<1.ltided«

defendants 1 and 2 in their

his own monetary lC)€I'1€§'i'{.,S.:"v.' Unvder._ "the-.yla'blove

circumstances, the said afi'10'Vll'nVV{"._.iS liable7 to be

recovered from the _ll;vll.2VLl'a11d 3. They

are jointly an;i:l l'tCl.l'pay the said

anioumjlll of inierest thereon at
20% froin* realisation. The

defeI'l,4(M$.r1t.sll"3._:VEiiid "2 committed fraud and

llllbreqiclh pf rt-r.List"ori""t.lhe plaintiff company and they

'are_.peirs"oanalllVyliiiable to pay the said amounts. As

the amount: due on the above

f"~.«.4_l'a,ccou1itis Rs. 1 ,41,708.75.

if 'The defendants i and 2 acting in Collusion

to have




nefarious dealings of the first defendant; Both the
defendants 1 and 2 along with 4 and 5 are
personally liable to nialie good this amount. As on
16.10.1992, the amounts found Clue l’rorV1V.1’f,:Mtf’li1.Ve
defendants 4 and 5 was Rs.l9.353.50
thereon at. 20% pa. from that
31.03.1983 the amount due .3
Rs.2l,l27.25. 3 3 3 3 3 3

The defendants l andffiljfas Director
and Chief ACcoL1nta’ni.__ gflziintillilffflCompany
ought to have taken all- safeguard

the inaferesZ1″s.l[_.. offQV1h’e’=._’ company to realise ihe

£:111}OLif}l’fS.’.t”,flLlVt’.. ‘:.’o~.V”ii:fa’-,fi;_:>111 its Consignors or

ouston_1ers.”-. ffB,l.V1l~, Ad_ufe” to their negligence and

V careleissness they have not taken necessary steps

fo:Vr’eooE\}lerjz..,Qf anioiinis due to the plaintiff before

‘ills f(:la’ini’l.,WaS’*– barred by lirniiaiion. A sum of

due from one B.lbrahim of Bapel

–VKu:1chi”§-T’&er{:1a1a Post. Kerala. The Claim against

u’~–hfim_for”ihe said amount was barred by limitation



on O9,01.t982. There was another sum of
Rs.5.113.T/”5 due from one Kasturi Nayak. wife of
Shantharama. Nayak of Nettanige Mudnur Village.
Kavu Post. Puttur Taluk. The Claim
amount. was barred by limitation on
The defendants 1 and 2 otxghtado

appropriate legal action againgst. SaatdV”pe’rVson:.:vaA

before the claims were ttmte’«.barr–ed’.’ Aft1ay’e_:n0Vt

done so and the plaintiff ctonipany is.’§,~gt: to toss on
account of their :’1.eg1ig_et1.j_ce.””»._’pa_:*1’hereI’ore, the
defendants 1 and V1tai3_Ie..7_to”fpflay the said
amount with, ozi _t.hjeV” at 20% per
an11um:”–.t’r’orI1′ due dates. But the

plaintiff ‘cornpany7._ota.i’I11s interest. on the said

–‘v.p_amc}”Ufl!f1t.:__f’E’1’on1AAG~4;.r___.}__’1v.1982 the date of 1’egts1’e1*ed

.”..A11e.t’i”r;:Vep.’v__ASj.o’1’1.._31.03.1983 the amount. due on the

a13.”o\?L5 is Rs.’7.256/~.

Tdhe; defendants 1 and 2 ought to have

“‘p.dc.b’t.–at_Aned licence under the provisions of the

.._K_arnataka Money Lenders Act. as the plaintiff



company was advancing the loans to its
Consignors. The above t.ransaet.ions amounted to

the business of lending monev Though the Said

Act had Come into force in 1976 the dei’endan”t–s 1
and 2 did not apply for and take the 3

licence under the provisions 01′ the said

did not possess money 1er1de1*s”Iioe’nc:e<. Tii.e"re_fodr"e' a7

suit in o.s. No.e54/1980 on 1.h'e.. file of LilfiefM'ufi:.gi'~if"*–..

Court, Mangalore again'si«1r't.one'._S'i=i..}Gu1vndVVappa
Gowda was disniissedday The evlaim in
the said suit was for Rs~,4.7'7»T3.5'3ViV.xtt1'thiinterest and

court: c.o"s't:…_V'7':héj:::f:§"ot.a«E»'*1.oss""eaused to the Dlaintiff
Conipany on 'a_ot:~:o:,initV'Vo._{"'t,_he dismissal of the said

suit wasi"Rs;v5;2'5$3.%8..;': And this amount was

"'~,fK§ee;fV'er?1.3,5l'?. fron'1~–….1..}1e defendants 1 and 2 with

'=.inte"r'estv.._t'tt',hereon at 20% per annum from

date of dismissal of the said suit.

on ~3d1′;03.I983 the amount due on that account

“is .R§’;~«_s,3 12/–.


The plaintiff eompany got issued a Iegai
notice on 04.11.1982 to the defendants and also to
one Sri.K.I'”I.Mohammed to whom aiso
defendants 1 and 2 appear to have made
of large sums of money in the san1.e;” V’
without the sanction of the :.E3’c)a.rd
The defendants 1 and 2 1.0

would appear to have a1rea_d’y_ insV’ti.iu’!.ed.: in

o.s_ No.41/1981 on,—ihe ,Fi’ie”L_”oI”-»_ihe “cvmi Judge
Court, Puiiur agaiI1St4’h#i.f’l’i.”:_I3i§’f€i1’dElViiiS 1. 2. 4 and
5 have sent V firiiiioloieiidsivb’r’ep.ii”e:s,_ to ‘ytvvhe registered
notice s bu};/::fi.:1″h e’– — iI1’fi”{“‘f–. ‘

The “e_oia1I1§ofn,h for the claims made

against iliefidefelida–t1’t’s”Vl1ei’eir1 is fraud. breach of

K’1sFUSv.t’..”‘:~(T.;O_11I.l._SiOI1’Hgi’~£EVVCf riegiigenee and carelessness

duties oi’ the C1€’.f’€31′}daI11,S 1 and 2

andVoihei*d.efendanis. AI} the above ti-arisaetions

are closely knit. together and prearrangement and

“£.i:eVrefore the cause of action is common.

“=..__””Therei’ore. a common suit is fiied. Therefore. they



sought for 21 decree for money in .21 sum of
Rs.1T/6.504/–. Subsequently, plaint was amended

and the claim was reduced to Rs.1.4l,7’08.75.

4. After service of summons. the
entered appearance and filed a
statement. contesting the
admits that the he was
the piainiiff company for 7 has
worked and disChaf:g~e_d law.

provisions of the of

Association }:3_l21§in:tlil”f.’if-lo’n.1Vp_s;i1y and to the

sat,isfa?r;tioinllllofy of Directiors, honestly,

c1i1igemi’y…_ “peas.¢ri;;:ni’y.._:’:”aiid bonafide. keeping in

View the belstAi1″1terestls of the Company. All his

la’cit_s’i”\iize?i*e either Vsléihcrticwiied and/or ratified by the

lflolarcli’ Ihiring the said period, the

com-pany Dhas shown great progress and

“<«_!'LI1'1}1)I'O\.f.E':Hl'"AI;:I€1'1'L. as is known to and adiliitted by all

"'CQ'n_ee::ned. The accounts were auclitecl and the

'lit–..flBa?1ance Sheet was prepared regularly and as per


law. and all mat.t.e1*s were approved and accepted

by the General Body.

‘The allegation in the plaint. that the
Managing Director had the power of g1’a11ti11gvVl’o:a»1is
only upto Rs. £.OOO/- and that without
permission of the Board of Di1*ectors_..V__hle::.
power to grant loans or to

exceeding Rs. 1.000/~ was deiiieii.

The appointment oi’ Nlainahgiiig D}ii*ecto1*
does not disclose Vt.’hfé”_s’aici_v.lre..s;’t.ir.’ietions. The

defendant reco.1lects_…si_lI’a.t’._Al”oi”‘ll”‘so’iiie”. years the

authoiity Director for the
sanct.ionuoi’–loans’:_was~.__ti~»i1limited as per guidelines.

At any_ Valvl_i.he. trllansacétions including loans

place during the time the

‘r:leifeTnd..ai1_tfi,”w_a”s functioning as the Managing

Direyctor with the authority. sanction or

“I’_’E1[ifiCK:”!l;lAf’_:_’1’l of the Board of Directors. The Board

‘~o”fVVD»irectors are not entitled to escape the

“”‘responsibilit’y for their actions and omissions. if

uflany and are not entitled to point at others for the



the piaiiitiff is $E,i})pI’€SSiI’1g documents iake at the
proper time. He suspects the genuineness of the
documents shown to the defendant. as the
promissory note executed by the 3″‘ C1(3f'(3I1(?1.’:v’1V1″.’.i:””>’.).I’i
27.6.1980. The suggestion in the
was granted on 27.6.1980 to the
without sanction of the
correct. The defendant does
granted any Cash loan 3″; a

sum of Rs.94,60O/–y”~o_I1 i5i;i’rt’her the

advances referred to inthe5p1_.ai’–n_’éV.v”said to have

been made 3!}? C’3(f,rI3f311.{i”‘c’1’i’:i~~1j.uCfé”Va1’iOuS dates

wiihouzi thee{svaheiiio_n’«..o’_of Board of Directors
etc… is allegation that those

U’aI1S;’–1C1;iOI1RS kepdfs away E’:-oni the Board of

V.”DiI’e’.(‘,if0iI_”S “is fai’s'”e”‘;”V The aliegaiions that a sum of

due from the 3″‘ defendant is not

eorreici._.”.r’¥._EiiV’a1iy rate. the 1*’ defendant is not

‘V1_iab1e*~t.voA’;.Lhe piairitiff any amount. due from the 3?”

for any of the reasons alleged in the

“°p1Vaini.. 3″‘ defendant: P.B.Andunhi would transact

Win other names also. This defendant reeoileets


that on 27.6.1980. the amounts were due to the
plaintiff from the 3″-3 defendant taking into
account. aiso the liability in respect Ol’O’t1’l€i’I”lE1’__I’I’1€S
transacted by them. adjustment entries
on that date and documents are taken
defendant. for the balance amo__u.nt__for”tlhef’_p.ti’r:p’oesecu
of security and convenienceifléotfirecftJ\le~ry,’:”a”ft’¢e”;..:
receiving some Cash froné:_”i.,he
Anduhni. This was done Sri
Narasimha Sastry found it
desirable in the. inteirest. Company.
The .:li\{afi.lfVJ5iV”?il’n’ii”‘:breach of trust
are are not furnished.

‘I’h.erefodre._” do not amount to a

proper This defendant is not able

.._to r..e§coli~ect the’ transactions with defendants 4

‘a’f1dV.Vd”‘5,EV”ihVVeA~.’nature of the transaction and the

~i1″ansactions. This defendant is not

«t_i_i.e’a’rnot1nts due from defendants 3 and 4

to the p_lai.ntiff. The other t1’ansact.ions referred to

~w__V’are alsoéienied. At any rate. this defendant is not

t.o pay the said amount. The defendant. is



not in a position to say whether the license under
the Money Lenders Act was required or not. The
plainiifl’–Cornpany had iawyers for giving the
advices and if advice is not got on what dot?ti.nie:ni{_s
have to be taken regarding the Money
this defendant is not iiablem
However. he reeollects the .l
license were aiso being n’1a_de l”i*.o;ln1 time
He do not recollect. urhalllvlvllhaiabened. tlielllsuit
mentioned in Pai*ag!’a_’pyh lhe suit
is dismissed on the

resignation Qf4l.’lfie’ dei’e’:11d’aA.ni’.”.’uflfhe suit eiaim is

barredzvlby i’ir:ili_i.at:i.o11_.’lV.The eiaim is also barred by
the principles’ waiver. acquiescence.

All theyEran’sac:t.io11s.that have taken place during

«gs “” “i’Vlar1ag,.;ii’ig [Director has been

l’s_aVi;et’ia.o:r1ed-_l”appropriate and ratified and are done

with lproperiailluthoriiy as required.

“defendant. W Sri ii Govinda Rao also has

l-_i’i”l_e’c.i~a separate siatemeiit. Some of the members

it “o.f7ihe Board of Directors wanted to make wrongful



gain of the funds of the Company which this
defendant was opposing and so only to wreck
Vengeance he was placed under suspension since
19.10.1982, an enquiry was ordered by i’ra.n’1–.ing
charges and that made this defendanr
from the post in which he was \x!o1’kingi_f€:
additionai harassment, the pr’e’seni:&_
fried and this defendant was

This defendant joined the_VL4″”p_1;–1i11.Viifi” 11
Vyavasaya Varihaka,’Sangiha…”L_Lifni.i,ed cierk in
the year 1956. as Chief

Accountant o_r1’1y which

appoin;£meni.Av(was7′;eoni’i.rmed in the next year. No
specific7duties*werebg-iy’e.1J.=’to him. He was also not

served witxirydaoytr_eso’1u.._i’iion passed by the Board of”

_ Direcitovrs. Theyuappointment order only indicates

he .ew.a”s–._V responsible For keeping i,ipwto~date

a-Ceo-11ni.s”~._aiid._.i:o act per the direction of the

Managinvg.ttijiirzector. Therefore. all aiiegations in

fthe p1ai'”n.ci’. contrary to the said facts was denied.

.i}..8.4[:1970. when his duties were Iaid down in

1′ ”~7.1.I”.1t3v._()1′:’-‘(l1(:,’I’._ he was not the ChiefA(‘couI11iant. The



docunients which the plaintiff is relying on in the
plaint. He is not in a position to recognise as to
which were the doetimenis referred to in the
Dlaint. He denies the iosses to the tune”–.yof
Rs.94.600/– as set–out in the plaint.
liable to pay the aforesaid aI}’iOL1I1lS.W
been no fraud as alleged niu(:h
trust. To the best of
defendant. accounts were
were drawn. advanoesx ha.}.»”e” or by
ratification by the _.He has also

denied the paiigavgraphs. It is

not hisgdulvtly”t,5o, license tinder the Money
Lendersl’Act. if.thVe_fbd–e:e’i«s~io11 has gone against the

cornpany. it” is it’.o–i’ ‘i.he’:Con’ipany to challenge the

lV’s.aid’-ijlucl—gnment. l’i’i”i’el defeiidant has not advanced

‘a_n’y_”ino*ney”‘..fio~” anybody rnuch less the person

nalmeld in.lblai’:;agra13h 7. The suit is bad for non-

joinder and mis–joinder of Cause of action. The

‘~p’lailnt«ii’f’s eiairn is barred by principles of estoppel

“”an\;:l waiver. The suit is frivolous and therefore. he

llfisotlght for dismissal of the suit.


6. 3″” defendant’ also has tiied a detailed written
statement. He has categorically admitted that he
has been dealing with the plaintiE”f/Conipany for
many years past and has consigned &11’1’21C1{an~7t’:t’t’.7tO
the plailqtiff on many occasions. It is
on 27.6.1980 this defendant
of Rs.9-4600/~ from the ptadi»itt’i’1’E7
waybtil 11078398. It is
eottuded with of
them. The avern’ie;31_s ma’deivi_:’:t.ti’a_t. t.h«e’1*’e i”‘\V2§\/as no
consigning of areka defendant

is not aware a:-:-_te»_ what’ o,r”iS–..i10iIrecorded in the

i’egiste,i” 0f’th;’e_V 1)1?air1.t’i’tf&t’. it not true that some
more ad.va«neeisVi’ittcttie-~._tVtCvbt;’ained by the defendant

S1,1bSeq_Vt1e1it”tyV.V’ .ff;hiAs_ d”‘efendant decided to go and

d_’0.:\N}_1AiI1″B()”fiib€ly. Hence. on 5.7.1982. this

‘_dpeV1’*s0na11y went to the office of the

platintiit a’n’jdf:paid the entire amount. amounting to

?igs.1_’2..3″‘;22’5.00 and the promote dated 27.6.1980

f§’:1r1di”‘QAther eonneeted,doeuinents were returned to

1*” defendant had by then left” the

7.:ntaiiitiff/eonipany. This defendant. paid the


aforesaid amount. into the hands of A
Gopalalwishna Bhat who was the manager
incharge of the plaintiff. The said A

Gopalakrishna Bhat also said that he \PVOL1l’Cl..VV’t?3.”(‘i’2>17\.V_Ci

a receipt for the amount. paid in a
On 9.7.1982, this defendant w-rote a_.le»t.,t’:e~1″V”t..o «.t.l’1e’u 4
said Manager incharge requesting…l11rtt«._t”:o_’

receipt. by registered post; Thei:¢”was to

that letter. He did not pttrsiie’ the lrii-after since he
was busy making pr’e__p”a1″at:iohs” t”o.go to Bombay. If
the plaintiff has produ’Ced.’V_a{1y:’~p.i”o’t1o.te to be the
one execL1t.eci”‘t}y.’ tliiisidéféndefI11..s._V:’ll is a forged
document.”i”v{TVhe7t’sL1.<i't'«…"is for non-joihder of

necessary pa1'tiVes.;"._

7. Defehclaivtts 5 also filed a detailed

‘*,_wI”itfter1:sLatem”e’n.t._,____.The SEi11(‘,l’.lOl1 of Rs.30.000/– on

V”._q,2/L12.1.98(3.._o’r___on the earlier dated 2.l2. 1980 in a

as alleged in the plaiiit were

‘Vdenierl.”‘.a All the borrowiiigs were made by these
ifdefe-iidaVrit,s on executing necessary records. It is

‘denied that’. these defendants :~;21″e liable to pay



the dei’enda1’1ts 4 and 5

what amount?


owed to plaintiffs any and

Whethex” any or both


along with other defeI1dants._ ‘ tho’-,x”
make good the amounts 1′(s’u1’1″d*.ft»Ohh”
be due from the Ci,F51’6;fld§1h’1/5′

and 5 and if so. what “a_ni–ounts?; ‘ °

Whether the SLiitHx”i_t”>a;V niigs

joinder 0f.ea.usesh’ of sajetji’0.n’?

Whether t.h_e ‘ fV1§~–. “b~i::;V::r7-ed by
11n1:.:t’91._ti:’on?I_ N h ‘V V

“the Claimed are


st opp e i” agai’i.ye 1* 21 n d 21 C’. q U ie scene e’?

Vvere negligent in pe1’i”01’manee of

Whe’t~he:’ defendantis 1 and 2

duties in not applying for

not obtaining license under

‘fie money lender Act’?

Whether the defendants 1 and 2

are liable to pay to the

the amount lost to it on accotlnt of

the dismissal of the suit ()5


1 and 2 are




N654/£980? And if so. what is the

extent of their liability’?

(13) What relief’?

9. The claim against. defendants 4 and
given up. To substantiate the claim of
1 to 3. plaintiff examined a_;»SS_B
addition. they have produced
are marked as Ex.P.1

defendants. no evidence wa_s..ad.d’u_ced.l

10. The trial 1-_alfj’p_re’c’ilalion of the

aforesaiidl”o’rf.ali.anddoceu’-menla’*i’y evidence on record
held the lp_lalinili~ff1’s ‘a_reA..»p_r:operly represented: The

plaintiff esi.a_bAl’i_vsli.,e1d that the loan granted to

defendallfitwas unauthorised: 3″‘ defendant

lfowelili.io._l’L’h;e». jp1..ainiiff’ in a sum of Rs.1.41.708.50/–

as .Cli’ain1etll’r:’j_iln’lhe plaini; The case of fraud. breach

Cof falsificaiion of accounts alleged in the

..fpfa’il1’i.fL is not established. The claim against

‘edlélfendants 4 and 5 was not pressed. Both

l”,VHdefe1ida11i.s l and 2 are liable along wiih other



an audit report. the findings recorded by the trial
Court; is vitiated.

Thirdly, it was contended the Managing

Director cannot be held personally liable ifflany

one of the customer has not repaid V.
amount. When once the plea of fraud islli:..egaié.iiled’.-..l
when 8″? defendant — the cnstorner’iszal;soV:”a_§a’r’t:y”1

to the proceedings, it’ is _operi?_to”,_t.he

recover from the 3rd de[‘e’11r.d’ant t.h«els.a_”1_;d ‘*=afin”oum
and there was no ol£3~li.giit,iO”n ‘oil til’? Darlt’*of”lthe ls’
defendant. to Clear the said»Van1o_ni’nft….and therefore,

he Cont,e1ided,«s:ee_11 the judgment

and dectre-el requires to be set»

aside. PlerullVcolntr’a.”diiearned counsel for the

1*espo{nder1ts ‘supported the impugned judgment

lr1._t*l<1.e" of the facts and rival eoritentions,

t.he'-.followihL.g points arise for Consideration in this


(1) Whether the 1*’ and 2*” defendants
are liable to pay the money due
from the 3″-‘ defendant to the

plaintiff as held by the trial Court?

{2} Whether the suit filed without

report was maintainable’?

{3} When a case of fraud,

trust is held t.o be
is the 1~”*’- defendant liabletlo pa’3(it~he«. it
suit claim? T A it

l3. Po1’ntNo.1
The material re.eord’ ‘«di.s’€»1Aoses H that the
plaintiff is a V PriVa_te:’ ‘(l3:._on=l1par1y. 1.9’

defenda,nt.* was”apL§)oi’i’iit.e’das a l\/Ianaging Director

of the saidltColi;1;5a.n’yA;} At. the relevant point of

time;§OO to



the 3}” defendant. — a customer of t.he plaintiff on
his supplying 100 C[i.iiI’lEalS of arraclsianut. The

material on record discloses apart from ___the

aforesaid transactions on severai OCCElSlOF}”S~.,i”‘.3″”‘j

defendant has been paid money by

The specific case pleaded by _t_h,e__pla–in’tl’i’ill”_’:is”=that.v’

the manaéiing director was 7–_not”A.’éiiithOrise”d”*~..,4t’tc-.i_A

advance any sum in exeess=.__of
the prior approval oi’ the Boa-1f:d-.yot’ D’iitel_c’torVS. The

present transaction ‘=,\i’as’._ 1:’_eve’*r_'<.brought to the
notice of the Board asst-v,n'ec:e.sspa1?y'.enii':'ies were not

made in the .()l'. a:'eeotin.ts' niaiiitained by the

Company aindbihe"i_ei1pt'.i'ije eornflpany was managed by
dei"enda"nts._ ll was never brought

to the nVot'._'icr:: of Alilfi€Tj_."'b0E1I'Cl. On 3.3.1982. 1*"

defengjdant resigned." Subsequently, 2"" defendant

a'lso" It is on their resignations. when

1a.ceo1li1.tTs.._pwere}. checked, then they found these

comrnitted by defendants 1 and 2.

fptnimedyiaijeely. a legal notice was issued. The books

fof’ ‘a~c;count.s maintained in the plaintiffwcompany

.’j_.d”ob”i’1:ot disclose the receipt of 100 bags of


araekanut on the basis of which the amount was
tent to the 3″-‘ defendant. The evidence on record
discloses that. 15>’ defendant was not authorised to
make any payment without. securing prope1ft,yjrfo.r
the due repayment. The procedure
whenever a payment is made under

on the backside of the debit1;.””t_j}_1e

secured as a security_.Vi7,..”–.t”he ag_1iic’u°itti;r’avlV

produces is clearly n1ent.io’ne’d. T’h._ereafte~r,”that.

product is taken in.t”o~.,.aceotirit;i’i’on1 thv-e”c’ornpany
by making appropriate e’nt:rie.s1″-find’*__the inward

register and sable 1.0}? ajprodticts. after

adjusttVnent’,i’«ithe wasvdwrioriilaily discharged.

As aforesaid. ‘if”a*ny<.__Ir;»oney is tent in excess of

Rs.10(_3O/.d'"E31'i'o.Fi-.Pe–1'bm~.i"ssion of the Board was a

"'."mLES"E':«:. _in fac"t);«___1_,__h¢e documents produced in the

c;:Aa'e.e"as':' pointed by the trial Judge. all the

r'es'o'_iut.'i'o"1*:s.t"a'i'e in handwriting of the 15'

defe-.nda.n~i._d'<j'..–Ai it does not disclose that this

".t'ra11sa~ct'i;.on was brought to the notice of the board

any point' 01' time. in fact. in the written

–if.–st–at’eArI1ent’. the 1*” dC’f€Ild£-111E. pleads ignorance



document produced and marked in the case
showing that there was a debit note for 100 bags
of arrackanut do not represent. a genuine
transaction. It is in this background
is to be appreciated. But. none of the V’
have entered into the
content by cross examining
the Company. His “ho
assistance in provin_sg.the but
through him they documents
maintained ‘business by
the piainiti’§:i”,(__b’an’.i;Iilihtetdsttttdddtproduced the
memor;an’dVnt1ntV5»v’_V 01′ association.

promissory note by the 3*” defendant at

the tirne Rs.9-4,600/m. He has

V.”{)_I’OC’…1.i:'(?f;’CA1 L?aAbOL1i.'”2’G’vd£?biI notes showing that 3*”-

“‘~ae’;’e_n’dé.-mi.t;\:;1s-. a regular customer to whom the

arrtohtintsytwicrle paid and in the back side of the

“said debit notes, there is no ment.ion about any

‘=_secLi’rity having been taken from him. The account

ibogoks produced in the case shows either on

27.6.1980 or on other dates. there is any entry in


l in I’ t. ii. .


has failed to perform his statutory obligations. It
is not only one transaction. There are more than
20 transactions where money has been paid tov’–t_he

3″‘ defendant contrary to the proced.ure.7i”-Ttfhe-.,

accountant who was in employment it

who has been given p1’on1otion:-‘aihd.yatithve:Ai;ele:vva:ntx’v..
point oi’ time who was the
failed to bring it to the
and directors about,these—–iljrregiilaritjievsy.He is
also a party to this” In fact, the
disciplinary pr’oce_edi:n”gVs’weVi*e._l:i.iiV.litli’.a.i:«e’»dllagainst him

and therea “terI__*.’_ it __ was ilwithdrawn on his

resignat.ionl’.”‘€5’VRig:htlyghe not challenged the
said order.” He.al:_ls.o”‘d__ié:i.not step into the witness

box to _subslta_i1tia’–i.e”pthlell defences which he has put

Invv.:’t«Vhesje._}e.ircumstances. we are of the View

_ that-..__thev~fivnsdlings recorded by the trial Court that

.4″-__VVI”‘iQ[r or1ly__l’the 3?” defendant is liable to pay the said

4″7″c?..__II’if.,)_L1l.f1′[, even defendants l and 2 because of

_la__§)ses. latches. negligence in discharging their


dues in unauthorisedly tending money to the 3″”
defendant. We do not any jtistificatioii to
interfere with the well considered order passed by
the triai Court holding that all of them are liable

to pay the said amount.

14. Point No.2

It is a fact that audit report
before the Court. The suit .d
report. The suit is o”n_h”t.he
showing the payment to Debit
notes are “Hdisputed.

Promisisory i’s”~._pr_o_dueed which is not
disputed’.. TheVae–eo’u__n’t'”.books are produced to

showjvtihpat araekanut for which this

‘a’rno’uni.7*vtfas adtfaneed was never taken into

plaintiff and above all the 3″”

defe..ndan~tradlrnitted the transaction and he pleads

x”i«___V’diseha’rVgAe and he has failed to establish the plea

“o_iVd_is”;eharge. Under these eiretiinstanees. the trial

Cdurt was justified in ignoring the fact though no

“audit: report was produced. as the ease was based



to the Claim made by the plaintiff independent. of

fraud and breach of trust. When the plaintiff has

established his Claim. the trial Court. was jufis..tV_i’-{died

in Coming to the said Conclusion. We dQ:__1;iOf :”~S_€’€__x’_

any merit in this appeal. Accsif»diz1g1},”.””ti*{:e..Véigjp-eaiyé

is dismissed. Parties to bear t1f1€i§,”‘–Qtk\’Ii=,CO.SV’L’S_’~~U,,,,_

AH8 / bnj:

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