2016 (7) TMI 1680 - HC - Indian Laws

Court awards plaintiff Rs. 1,89,07,000 for loan recovery, dismisses challenges. 8% interest from 2015.

New Era Impex (India) Pvt. Ltd. and Ors. Versus Oriole Exports Private Ltd.

The court decreed in favor of the plaintiff company for the recovery of the principal amount and interest, totaling Rs. 1,89,07,000/-. The court held that ... Suit for recovery of principal amount together with interest for the period prior to the institution of the suit together with future interest - guilty of acts of misappropriation or not - pleading is that assets of the defendant company alleged to have been sold fraudulently were sold in the lifetime of Shri Sudhir Sareen. HELD THAT:- If the defences which are in violation of laws and amount to defrauding the taxation authorities cannot be permitted to be taken. A litigant cannot be permitted to take a stand in the Court diametrically opposite to the stand taken by it before Taxation Authorities. If the courts permit such stand to be taken in the course of judicial proceedings and should the courts come to the rescue of such a litigant, in this case for avoiding the recovery of dues which the litigant elsewhere has represented to be due from her, I am afraid the courts would be becoming privy to abuse of their own process. In Ram Sewak Vs. Ram Charan [1981 (11) TMI 190 - ALLAHABAD HIGH COURT] the parties had been keeping double set of accounts for evading payment of income-tax and sales tax; the trial court reported the matter to the Taxation Authorities; the High Court held that the court should have refused to entertain the suit on the ground of public policy as it involved directing the recovery of an amount found to be due to either party as a share of the profits which had been deliberately concealed by the parties from the books of account in order to evade the payment of taxes. It was further held that no court can countenance a deliberate evasion of the tax laws of the country and to lend the aid of the Court for recovering an amount which had been deliberately kept concealed by the parties in order to evade payment of the taxes due thereon. It was yet further held that if the court was to do so, it would amount to aiding and abetting of the evasion of the laws by the Court itself. It is not open to the defendant to before this Court contend that the monies which the defendant in its books of accounts and balance sheet has shown as loan from the plaintiff and repayable to the plaintiff (and on the basis whereof the defendant has been assessed for tax) are not a loan from the plaintiff but 'in the nature of gift' from the plaintiff and not repayable to the plaintiff. Supreme Court, in Karam Chand Thapar & Bros. (P) Ltd. Vs. Commissioner of Income Tax, Calcutta [1971 (8) TMI 29 - SUPREME COURT] held the circumstance that the assessee was showing the shares as investment shares in its books of accounts as well as in the balance sheet, though not conclusive, but is relevant circumstance on which reliance could be placed upon and necessary inference drawn. It was further held that the explanation, that the Company had to do so because of provisions of the Company Law, was unfounded. It is not the case of the defendant in the present case that the plaintiff Company was authorised to make gift or that the defendant Company was authorised to receive gift. For this reason, the defence of the amount being by way of gift or in the nature of gift cannot be entertained - there are no basis in law to put the present suit to trial insofar as the claim of the plaintiff company for recovery of principal amount of Rs. 1.48 crores is concerned. In the entirety of the facts and circumstances, it is deemed appropriate to award interest to the plaintiff company on the said sum of Rs. 1.48 crores w.e.f. 1st April, 2015, at the rate of 8% per annum till the date of this decree and for a period of three months from the date of this decree within which time the defendant company is expected to discharge its debt under the decree. However if the decretal amount is not paid within three months herefrom, with effect from the expiry of three months, the principal amount of Rs. 1.48 crores shall incur interest @ 15% per annum. Further, if the payment of the entire decretal amount is made within three months, the plaintiff company shall not be entitled to any costs of the suit; however if no such payment is made, the plaintiff company shall also be entitled to costs of this suit. Counsel's fee assessed at Rs. 55,000/-. Application disposed off. Issues Involved:1. Recovery of principal amount and interest.2. Nature of the transaction (loan vs. gift).3. Authority to file the suit.4. Limitation period for filing the suit.5. Admission of liability in balance sheets.6. Interest entitlement on the principal amount.Issue-wise Detailed Analysis:1. Recovery of Principal Amount and Interest:The plaintiff company filed a suit for the recovery of Rs. 1.48 crores plus interest at 18% per annum, totaling Rs. 1,89,07,000/-, along with future interest at the same rate. The plaintiff claimed that the defendant had received the amounts through cheques dated 19th May 2010 and 6th September 2010, and that the amounts were reflected in the running accounts between the parties. The defendant failed to repay despite demands, and the plaintiff asserted that the transaction was commercial, justifying the interest rate.2. Nature of the Transaction (Loan vs. Gift):The defendant contested the suit, arguing that the plaintiff and defendant companies were quasi-partnerships, primarily managed by Shri Sudhir Sareen, who had gifted 95% shares of the defendant company to his daughter, Ms. Parul Gupta. The defendant claimed that the amounts were gifts from Shri Sudhir Sareen to his daughter, not loans, and thus not repayable. The court held that the defendant could not take a stand contrary to its balance sheet, which showed the amount as a loan.3. Authority to File the Suit:The defendant challenged the authority of the person who instituted the suit on behalf of the plaintiff. However, the court found this issue to be technical and vexatious, noting that the defendant admitted the suit was on behalf of the plaintiff company, and any decree would benefit the company, not Mr. Siddharth Sareen individually.4. Limitation Period for Filing the Suit:The defendant argued that the suit was barred by time, noting that the plaintiff had only filed the balance sheet up to 31st March 2012, and the suit was filed on 8th December 2015. The court found the plea of limitation to be bald and unsupported by specific statements about the balance sheets post-31st March 2012.5. Admission of Liability in Balance Sheets:The defendant admitted that the amount was shown as a loan in its balance sheets. The court emphasized that a corporate entity could not take inconsistent stands before different authorities and that reflecting an amount as outstanding in the balance sheet constituted an acknowledgment of debt.6. Interest Entitlement on the Principal Amount:The court found that the plaintiff had not credited any interest as receivable on the amount until it was demanded. Thus, the claim for interest before the demand could not be entertained. However, the court awarded interest at 8% per annum from 1st April 2015 until the date of the decree, and 15% per annum if the decretal amount was not paid within three months.Separate Judgment:CS(COMM) No. 27/2015:The court noted that the facts of this suit were similar to the previous one, with the additional point that the loan was interest-free and repayment terms were not agreed upon. The suit was decreed in favor of the plaintiff for Rs. 1,30,43,901/- with interest at 8% per annum until the decree date and 15% per annum if not paid within three months. The plaintiff would not be entitled to costs if the payment was made within three months.Conclusion:The court decreed both suits in favor of the plaintiff companies, awarding the principal amounts and interest as specified, and emphasized the importance of consistent representations in legal and financial documents.