P.K.Gupta & Anr. vs Ess Aar Universal Pvt. Ltd. & Anr. on 21 November, 2011

Delhi High Court
P.K.Gupta & Anr. vs Ess Aar Universal Pvt. Ltd. & Anr. on 21 November, 2011
Author: Pradeep Nandrajog

%                     Judgment Reserved On: 17th November, 2011
                     Judgment Pronounced On: 21st November, 2011

+                              RFA(OS) 78/2011

         PK GUPTA & ANR                              ..... Appellant
                       Through:         Mr.S.K.Chachra, Advocate with
                                        Mr.Gaganpreet Chawla,

         ESS AAR UNIVERSAL PVT LTD & ANR.    ..... Respondents
                       Through: Mr.P.R.Agarwal, Advocate with
                                 Mrs.Anju Bhushan and
                                 Mr.Y.R.Sharma, Advocates.


     1. Whether the Reporters of local papers may be allowed
        to see the judgment?

     2. To be referred to Reporter or not?

     3. Whether the judgment should be reported in the Digest?


1. A suit, under Order XXXVII of the Code of Civil
Procedure, was filed by the respondent against M/s.Prestige
H.M.Poly Containers Ltd. (respondent No.2) and its Managing
Director and Director respectively i.e. appellants No.1 and 2.
Decree prayed for was in sum of `20,40,023/- (Rupees Twenty
Lakhs Forty Thousand and Twenty Three only). It had four
elements:- (i) Principal Amount covered by 5 cheques exhibits
P-5 to P-9 each in the sum of `2,90,495/- i.e. `14,52,475/-; (ii)

RFA (OS) No.78/2011 Page 1 of 17
service charges as per lease agreement Ex.P-1: `5,79,048/-
(Rupees Five Lakhs Seventy Nine Thousand and Forty Eight
only); (iii) expenses towards legal notice: `7,700/- (Rupees
Seven Thousand and Seven Hundred only); and (iv) bank
charges: `800/- (Rupees Eight Hundred only). Liability sought
to be enforced was stated to be joint and several.

2. The suit was instituted on 28th June 1997 and after a
protracted battle, leave to defend was granted to the
appellants and respondent No.2 upon the condition that the
appellants and respondent No.2 would deposit `25,00,000/-
(Rupees Twenty Five Lakhs only) towards not only the sum
claimed in the suit but even to secure the interest which may
accrue if claim was decreed.

3. The sum of `25,00,000/- was deposited with the
Registry of this Court on 21.11.2002. The amount was invested
in a fixed deposit and ultimately the respondent No.1 withdrew
the amount deposited along with accrued interest thereon on
12.3.2004 after furnishing security.

4. 6 issues were settled between the parties on the
basis of the pleadings as under:-

“1. Whether the plaintiff is incorporated under
Companies Act, 1956 and the plaint has been signed
verified and filed by a duly authorized person? OPP.

2. Whether the agreement dated 10.9.1993 and the
personal guarantees are not duly stamped and
executed documents? If so, its effect. OPD.

3. Whether the plaintiff is entitled to recover any
amount? If so, what amount and from which of the
defendants. OPP.

RFA (OS) No.78/2011 Page 2 of 17

4. Whether the defendant is entitled to claim
adjustment of `30,31,250/- on account of margin
money? OPD.

5. Whether the plaintiff is entitled to claim any
service charges from the defendants? If so, at what
rate, what amount and from which date? OPP.

6. Relief.”

5. Reason why aforesaid issues were settled was that
in the plaint it was asserted by the plaintiff that it was a
company registered under the Companies Act 1956 and had
taken over the company M/s.Rustagi Engineering Udyog Pvt.
Ltd. as per a scheme sanctioned, which company had executed
a lease agreement dated 10.09.1993 with respondent No.2
and had leased out 1250 sets of M.S. Moulds on the covenants
contained in the agreement, obliging respondent No.2 to pay
lease rental in sum of `2,90,495/- for each quarter of the year,
and since the lease was for three years, for the twelve
quarters, twelve cheques, each in sum of `2,90,495/- were
issued by respondent No.2 and appellant No.1 and appellant
No.2 executed personal guarantee(s) to secure any
outstanding due and payable to the plaintiff by respondent
No.2. The company, M/s.Rustagi Engineering Udyog Pvt. Ltd.
had received `30,31,250/- (Rupees Thirty Lakhs Thirty One
Thousand Two Hundred and Fifty only) towards margin money
as per the agreement. It was pleaded that service charges, in
case lease rentals went into arrears, were payable at 3%
compounded quarterly as per the agreement. It was alleged
that whereas seven cheques pertaining to seven quarters of
the lease period were duly honoured, the respondent No.2

RFA (OS) No.78/2011 Page 3 of 17
company defaulted qua two quarters as the cheques relatable
thereto were returned dishonoured by the banker on whom the
cheques were drawn. The three other cheques were not
presented for encashment but the moulds were retained by the
respondent No.2 for another one year and thus on expiry of
three years after commencement of the lease, entire lease
rental for the twelve quarters had to be paid and since it was
paid only for seven quarters, amount due for the remaining five
quarters was liable to be paid to the plaintiff.

6. In the written statement filed, the signing of the
agreement was not denied. It was not denied that the moulds
were received by respondent No.2 and that the said
respondent paid margin money in sum of `30,31,250/-. But it
was pleaded, in para 3 of the preliminary objections as under:-

“That the suit is liable to be dismissed inasmuch as
the lease agreement and the personal guarantees
annexed with the plaint are neither duly executed in
accordance with law nor properly stamped and,
therefore, the same cannot become the basis for the
claim made by the plaintiff in the case.”

7. It was not denied that lease rental in sum of
`2,90,495/- per quarter was payable. It was not denied that
lease rental pertaining to five quarters was not paid. It was
pleaded that the margin money paid by appellant No.1 in sum
of `30,31,250/- was retained by the plaintiff which came to
much more than the unpaid lease rental. Admitting the default
clause liability to pay service charges @3% compounded
quarterly if lease rentals went into arrears, it was pleaded that
the amount was by way of penalty and being excessive was
unconscionable and hence not enforceable.

RFA (OS) No.78/2011 Page 4 of 17

8. We would like to speak a word here with respect to
issue No.2.

9. It is apparent that issue No.2 was settled in view of
preliminary objection No.3 i.e. that the agreement and the
personal guarantee(s) were not duly stamped and executed
documents. On what plea was it alleged that they were not
duly stamped? And why were they not duly executed?
Nothing was pleaded. As would be evident hereinafter the only
argument predicated qua them was that the stamp paper(s) on
which they were scribed were purchased from a stamp vendor
in the State of Uttar Pradesh but the documents were executed
at Delhi and hence it was urged that the stamp duty exigible
had to be paid at Delhi i.e. the stamp papers had to be
purchased from a stamp vendor at Delhi.

10. Now, the plea as laid in paragraph 3 of the
preliminary objection (contents noted in para 6 above) would
show that pertaining to the documents not being properly
stamped, any prudent person of even ordinary intelligence
would think that the challenge is on the inadequacy of the
stamp duty paid and not that it was paid in a wrong State.

11. We need to highlight that the fundamental
principles, essential to the purpose of a pleading is to place
before a Court the case of a party with a warranty of truth to
bind the party and inform the other party of the case it has to
meet. It means that the necessary facts to support a particular
cause of action or a defence should be clearly delineated with a
clear articulation of the relief sought. It is the duty of a party
presenting a pleading to place all material facts and make
reference to the material documents, relevant for purposes of
RFA (OS) No.78/2011 Page 5 of 17
fair adjudication, to enable the Court to conveniently adjudicate
the matter. The duty of candour approximates „uberrima fides‟
when a pleading, duly verified, is presented to a Court. In this
context it may be highlighted that deception may arise equally
from silence as to a material fact, akin to a direct lies. Placing
all relevant facts in a civil litigation cannot be reduced to a
game of hide and seek. In the decision reported as 2011 (6)
SCALE 677 Rameshwari Devi Vs. Nirmala Devi the Supreme
Court highlighted that pleadings are the foundation of a claim
of the parties and where the civil litigation is largely based on
documents, it is the bounden duty and obligation of the Trial
Judge to carefully scrutinize, check and verify the pleadings
and the documents filed by the parties.

12. Highlighting that pleadings must be sufficient and
consequence of laconic pleadings, which cannot be permitted,
and the failure to plead sufficient details amounting to an
insufficient plea, in the decision reported as AIR 1999 SC 1464
D.M.Deshpande Vs. Janardhan Kashinath Kadam, the Supreme
Court observed qua a claim for tenancy that in the absence of
a concise statement of material facts relating to the tenancy,
the mere raising of a plea of tenancy is not enough for the
purpose of raising an issue on the question. The Court
cautioned against a pedantic approach to the problem and
directed that the Courts must ascertain the substance of the
pleading and not the form, in order to determine the same. It
was observed that pertaining to a claim of tenancy, the exact
nature of the right which is claimed has to be set-forth and no
issue pertaining to existence of tenancy could be framed on a
vague plea.

RFA (OS) No.78/2011 Page 6 of 17

13. Thus, we are of the opinion that issue No.2 ought
not to have been even settled, inasmuch as it was not pleaded
as to in what manner the documents were not properly
stamped and that in what manner they were not properly

14. On the issue of execution qua the three documents,
we simply note that as regards the two personal bonds, they
bear on their face the signature(s) of the executant thereof,
and as regards the agreement, we find that it bears the
signatures of the authorized signatory of the respondent No.2,
with the stamp of the company embossed thereunder. If
signature(s) of an executant appears on a document, in what
manner it is alleged that the document has not been properly
executed needs to be pleaded.

15. Holding that on the existing pleadings, issue No.2
ought not to have even been settled, we shall be discussing on
the subject as was debated before the learned Single Judge
while dealing with the submissions urged during hearing of the

16. Issue No.1 decided against the appellants and
respondent No.2 was not pressed before us. Only submissions
urged were to the admissibility of the lease agreement and the
personal guarantee(s) and qua the sum decreed, we shall be
noting hereinafter such facts as are relevant to deal with the

17. Before issues were settled, admission/denial was
completed and it needs to be highlighted that during
admission/denial, the agreement was admitted as Ex.P-1 and

RFA (OS) No.78/2011 Page 7 of 17
the personal guarantee bond(s) were admitted as Ex.P-3 and
Ex.P-4. The five cheques were admitted as Ex.P-5 to Ex.P-9.

18. One witness each was examined by the parties and
Mr.Sudhir Rustagi PW-1 tendered by way of affidavit his
examination-in-chief and once again referred to the aforenoted
documents as having been duly executed and suffice would it
be to highlight that at no stage was the admissibility of the
documents questioned.

19. On the issue of admissibility, with reference to
Sections 33 and 35 of the Stamp Act and Section 36 thereof,
the learned Single Judge has held that the rigors of Sections 33
and 35 of the Stamp Act were whittled down by Section 36
thereof which prohibited the questioning of any instrument
which was admitted in evidence, except to the extent provided
in Section 61 thereof. The learned Single Judge has held that
when the documents were tendered in evidence and proved,
no contemporaneous objection qua their admissibility being
raised, it was too late in the day for the appellants to have
argued with reference to the admissibility thereof.

20. We find sufficient force in the contention urged by
learned counsel for the appellants that they had raised an issue
pertaining to the admissibility of the said documents in the
written statement filed and it was not a case where question of
admissibility was not predicated at the earliest. Counsel urged
that the mere formality of not repeating the objection qua
admissibility, when evidence was led would not mean that no
objection qua admissibility with reference to stamp duty was
not raised.

RFA (OS) No.78/2011 Page 8 of 17

21. But, we hold against the appellants for the reason,
we have already held, that on the vague pleading no issue was
required to be settled qua the adequacy or inadequacy of the
three documents inasmuch as we find that adequate stamp
duty was paid and the objection being raised was, as finally
argued, that the stamp duty was paid in the State of Uttar
Pradesh. If this was the precise objection raised, the opposite
party could have taken recourse to corrective measure as per
Section 31 of the Stamp Act.

22. Besides, we find that there is no evidence that the
documents were not executed in the State of Uttar Pradesh,
but were executed at Delhi.

23. In the teeth of the agreement Ex.P-1 and admission
of the fact that five cheques in sum of `2,90,495/- pertaining to
five quarters remained unpaid, the learned Single Judge has
held that the sum of `14,52,475/- was payable, for the reason it
was not disputed by the appellants and respondent No.2 that
the leased moulds had not only been retained by respondent
No.2 but even used all throughout.

24. The argument advanced before us by learned
counsel for the appellants was that once the cheque for the
eighth lease quarter was dishonoured, the plaintiff ought to
have returned the margin money and taken back the moulds.

25. The argument has no legs to stand on, for the
reason, a perusal of the lease agreement Ex.P-1 would reveal
that the value of the leased moulds, called the asset, as per the
Annexure to the lease was `60,62,500/- (Rupees Sixty Lakhs
Sixty Two Thousand and Five Hundred only) and half of which
i.e `30,31,250/- was the margin money. The term of the lease
RFA (OS) No.78/2011 Page 9 of 17
was 36 months and vide serial number eight of the Schedule to
the Agreement, after 36 months the lease could be renewed at
a lease rental of only 1%. We now note a few important
clauses of the lease. They are as under:-

“2.3 Without affecting the Lessor‟s right or the
Lessee‟s obligations to pay the lease rentals of the
fixed period specified herein, in the event of Lessee
being in arrears of such rentals, such arrears of lease
rentals shall carry service charges at the rate of
three percent (3%) per month compounded quarterly
of each instalment of lease rent or part thereof that
remain unpaid. The Lessor will be entitled to Bank
charges, collection charges or any other expenses
borne by the Lessor. The Lessor will immediately
claim a service charge @ `150.00 for every
dishonoured cheque, plus legal expenses for trial, if
any, under the Negotiable Instrument Act which the
Lessee shall pay to the Lessor on demand.

2.4 Upon termination of this lease by efflux of time
or otherwise the Lessee shall, at its own cost and
expenses forthwith deliver or cause to be delivered
to the Lessor the Assets, at such time and place as
may be directed by the Lessor, in good repair, order
and condition (subject to normal and tear).


4.16 On demand pay to the lessor all costs,
charges and expenses incurred by the lessor in
connection with the Assets (including inspection
thereof as mentioned in Clause 4.10 above) or for
the preservation, protection or enforcement of the
lessor‟s right or for retaking or repossession of the
Assets with service charges thereon at the rate of
three per cent (3%) per month, from the date of the
RFA (OS) No.78/2011 Page 10 of 17
incurring such costs, charges and expenses by the
lessor, till payment.


7.3 If the lessee fails to pay the moneys referred to
in 7.1 and 7.2 above, the lessor may pay the same
and the lessee shall reimburse all sums so paid
together with service charges thereon at the rate of
three per cent (3%) per month from the date of
payment till such reimbursement.


9.2.2 Without prejudice to and in addition to
the lessor‟s rights provided in Clause 9.2.1
hereinabove, the lessor shall also be entitled to
recover from the lessee and the lessee shall be
bound to pay to the lessor the following amounts,

a) the entire amount of the rentals for the
Fixed Period of the lease computed in the manner set
out in the Schedule attached as if the lease had not
been terminated to the end and intend that the
lessee shall pay to the lessor not only arrears of
rentals upto the date of termination of the lease but
also such further amount for the then unexpired
residue of the term which the lessee would have
been bound to pay to the lessor had the lease
continued, and

b) the cost of all repairs and maintenance of
the Assets to render and maintain it on good working
order and condition and all costs, charges and
expenses incurred by the lessor in repossessing the
Assets and in enforcing its remedies howsoever
occasioned. The parties hereto agree and record that
the amounts to be paid by the lessee to the lessor or
RFA (OS) No.78/2011 Page 11 of 17
aforesaid have been bonafide and satisfactorily
estimated to be the proper and reasonable amount
that may be suffered by the lessor as and by way of
liquidated damages.

25. The annexure to the lease reads as under:-



BOMBAY-400 020 & DELHI
NEW DELHI-110 065

RS.4850/- EACH (AS PER

B-90 & B-107, SECTOR 6,
U.P. – 201 301.

      0.5.    VALUE OF ASSETS         Rs.60,62,500/-

      0.6.    LEASE TENOR             36 Months

      0.7.    LEASE RENTAL            Rs.2,90,495/- per quarter
              STRUCTURE               continuously for 12 quarters
                                      payable in advance, at par at
                                      Deli commencing from the date
                                      of disbursal.

         0.8. RENEWAL OPTION          @ 1%
RFA (OS) No.78/2011                                       Page 12 of 17

0.9. REPAIR, MAINTENANCE & To be undertaken by the lessee
INSURANCE at the lessee‟s cost. The lessee
providing the appropriate
insurance of the leased asset
throughout the period of lease
designating the lessor and/or its
nominees as loss payees.

       0.10. MARGIN MONEY               Rs.30,31,250.00

       0.11     DEPRECIATION            The moulds will be eligible for
                ELIGIBILITY             100% write off in the financial
                                        year ending 31.3.1994 under
                                        First Proviso to Sub Clause (ii) of
                                        Clause (1) of Section 32 of the
                                        Income Tax Act, 1961

The lease rental structure as detailed above has
been arrived at on the express assumption that the
asset on lease as detailed above will be subject to
depreciation at a rate of 100% i.e. in the accounting
year ended 31.03.1994. It is also hereby agreed that
all mention of assets as detailed above in the new
singular shall mean to include the plural and vice

26. Suffice would it be to note that vide clause 9.1 and
its various sub-clauses, upon default by the lessee, the lease
could be determined and vide clause 9.2.2, contents whereof
have been noted hereinabove, notwithstanding the lease being
determined, the entire lease rentals were payable. Thus, it is
apparent that the plaintiff was entitled to a lease rental for the
full twelve quarters.

27. It is not the case of the appellants that they ever
returned or even offered to return the moulds. They continued
to use the same.

28. The lease in question has to be understood with
business efficacy. Moulds are perishable industrial tools and

RFA (OS) No.78/2011 Page 13 of 17
with passage of time a mould becomes scrap. The lease
agreement recognizes this fact by reducing its value to virtually
nil after three years, evidenced by the fact that after three
years the lease rental agreed to was only 1%. The last part of
the schedule reads: The lease rental structure as detailed
above has been arrived at on the express assumption that the
asset on lease as detailed above will be subject to depreciation
at a rate of 100% i.e. in the accounting year ended 31.03.1994.
It is also hereby agreed that all mention of assets as detailed
above in the new singular shall mean to include the plural and
vice versa. It is apparent that the moulds were subject to
depreciation as recognized under the tax laws and after three
years full depreciation of 100% was claimed. So understood, it
is apparent that the so-called margin money was half the price
of the moulds and the remainder half was agreed to be paid as
a lease rental and in this connection we simply highlight that
the twelve quarterly lease rentals @ `2,90,495/- per quarter
multiplied by 12 comes to `34,85,940/- and this explains that
on the remainder half investment, in sum of `30,31,250/-, an
inbuilt interest element had been factored; being `4,54,690/-.

29. Thus we agree with the learned Single Judge that
the plaintiff was entitled to receive `14,52,475/- from
respondent No.2 and since its Managing Director and Director
i.e. the appellants had stood personal guarantee(s), the two
were jointly and severally liable to the plaintiff.

30. An argument was advanced that the plaintiff was
obliged in law to mitigate the loss as per the explanation to
Section 73 of the Contract Act. It was urged that upon default
being committed by the respondent No.2 the plaintiff was
RFA (OS) No.78/2011 Page 14 of 17
obliged to seize the moulds and sell them in the market at the
best price and adjust the same from the balance outstanding.

31. The learned Single Judge has correctly held that the
margin money, reflecting 50% of the value of the moulds, was
to secure the moulds and there was thus no question of
adjusting the margin money towards lease rentals.

32. Pot calling a kettle black! The appellants retained
the moulds and never offered to return the same. Till the
moulds came into possession of the plaintiff it could not sell the
same. Having not offered to return the moulds, which the
plaintiff could not seize forcefully as law did not permit it to do
so, it does not lie in the mouth of the appellants to so urge.

33. The claim for `5,79,048/-, being 3% of the
outstanding lease rental compounded quarterly, payable as per
clause 2.3 and 4.16 of the lease agreement has rightfully being
denied by the learned Single Judge holding the same to be
penal interest under the garb of service charges. The learned
Single Judge has rightly observed that the plaintiff was not to
provide any service under the agreement. The learned Single
Judge has rightly opined the same to be a penal provision akin
to a penal clause pertaining to damages and has rightly held
that for money outstanding a reasonable rate of interest is to
be paid to recompense the plaintiff.

34. Thus, the learned Single Judge has passed a decree
in sum of `14,52,475/- (Rupees Fourteen Lakhs Fifty Two
Thousand Four Hundred and Seventy Five only) with interest
@10% compounded annually till date of payment. Costs and
lawyer‟s fee quantified at `55,000/- has also been decreed.

RFA (OS) No.78/2011 Page 15 of 17

35. On the interest being compounded per annum,
suffice would it be to state that as held in the decision reported
as 2010 SC 1511 State of Haryana & Ors. Vs. M/s.S.L.Arora &
Co., unless a statute or a contract so specifies, Courts do not
generally, award interest by compounding the same.

36. As noted hereinabove, the plaintiff incurred a capital
expenditure of `60,62,500/- to purchase the moulds and leased
the same to respondent No.2. Receiving `30,31,250/- i.e half
the capital towards margin money, balance capital expenditure
incurred in sum of `30,31,250/- was to be recovered by way of
lease rentals in sum of `2,90,495/- per quarter. As noted
above, the lease being for a period of three years, having
twelve quarters, the lease rental recoverable was `34,85,940/-.
The difference between the balance capital expenditure
incurred and what was recoverable was `4,54,690/-
(`34,85,940/- – `30,31,250/-). In other words, the plaintiff was
to get a return of `4,54,690/- on the balance capital of
`30,31,250/- which gives a return of about 5% per annum on
the balance investment of `30,31,250/-. Under the
circumstances, a reasonable rate of interest on the sum of
`14,52,475/- (which already has an inbuilt element of about 5%
interest per annum) would be 8% simple interest per annum.

37. The appeal is partially allowed. Suit filed by the
plaintiff is decreed against the defendants i.e. the appellants
and respondent No.2, whose liability shall be joint and several,
in sum of `14,52,475/- with interest @8% per annum from date
of suit till realization. We maintain the cost imposed by the
learned Single Judge, and as regards the appeal, would leave
the parties to bear their own costs.

RFA (OS) No.78/2011 Page 16 of 17

38. Noting that the appellants and respondent No.2 had
jointly deposited `25,00,000/- vide demand draft dated
18.11.2002 with the Registry of this Court which was invested
in a fixed deposit and along with the accrued interest was paid
to the plaintiff on 12.3.2004, we clarify that the interest
awarded by us on sum of `14,52,475/- @8% per annum would
reckon from the date when suit was filed till 12.3.2004 and the
benefit of the interest which accrued on the FDR on the deposit
of `25,00,000/- would be to the credit of the appellants and
respondent No.2. We note that as per decree passed by us,
money would be refundable to the appellants and respondent
No.2 and for which the appellants would be entitled to seek
restitution by filing an appropriate application before the
learned Single Judge. Till restitution is effected, security
furnished by the plaintiff when it withdrew the sum of
`25,00,000/- deposited by the appellants and respondent No.2
together with accrued interest thereon shall be retained and
upon restitution effected, the learned Single Judge would pass
necessary directions.


November 21, 2011

RFA (OS) No.78/2011 Page 17 of 17

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