TaxTMI 
TaxTMI 
1998 (8) TMI 489
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....300 tonne deep drying press on '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 26-10-1979, and in pursuance thereof submitted a quotation for L.P.G. cylinder plant/machinery. The said quotation was further followed by a letter dated 2-8-1980, as a revised quotation. The same was accepted by the plaintiff. 4. Defendant No. 1 had entered into a contract with Swadeshi Engg. Co., Mayapuri, New Delhi, for 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 Swadeshi Engg. Co. In this way, a sum of Rs. 1,51,482.96 was paid to Swadeshi Engg. Co. The plaintiff made various payments to defendant No. 1 to the tune of Rs. 4,05,000, details whereof are as under : (Rs.) 2-11-1979 30,000 23-11-1979 Cheque No. 283902 NBI 15,000 28-11-1979 Cheque No. 283903 NBI 20,000 28-11-1979 Cheque No. 3905 30,000 2-1-1980 Cheque No. 3908 30,000 6-5-1980 Cash 20,000 ....
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....er 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 26-10-1979, to the plaintiff giving therein quotations for supply of different types of machines to the plaintiff. The plaintiff by their letter dated 2-11-1979, 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 of defendant No. 1 with regard to the receipt of the letter dated 21-8-1980. It is wrong and false that the plaintiff paid a sum of Rs. 4,05....
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....itions which binds defendant 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 14-5-1985 : 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 defendant Nos. 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 Shri M. R. Bhalla and Shri R. R. Bhalla on the one part and defendant Nos. 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 Engg. Co., M....
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....ove that the learned counsel for the plaintiff Mr. Gupta while so arguing has drawn sustenance from the impugned resolution of the board of directors, exhibit P.W.6/3. Thus, exhibit P.W. 6/3 is the pivot round which the entire controversy with regard to the present issues revolve. A close scrutiny of the said document reveals that the board of directors while passing the said resolution authorised Shri RK Bhalla to file a suit against defendant No. 1 only, i.e., Hindustan General Industries Ltd., Nangloi. There is no mention therein that a suit be also instituted against defendant 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. 13. The 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 defendant 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....
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.... defendant No. 1. 17. Let us now see as to on whose side the truth is ? Admittedly, the impugned agreement exhibit P.W. 6/1 is an agreement in between Shri M. R. Bhalla, Chairman of Hindustan General Industries Ltd., and Shri R.R. Bhalla, Managing Director of 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 Hindustan General Industries Ltd., and defendant 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 defendant 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 shares in defendant No. 1 company to defendant Nos. 2 and 3. Thus, if 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 defendant 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 amo....
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....the learned counsel for the plaintiff. It is manifest from article 113 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 2-11-1979 (exhibit D-1). The said order was for the supply of as many as six machines mentioned at serial numbers 1 to 6 in the body of the said letter. One of the said machines was a deep drying press of 300....
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....d counsel for the plaintiff has then contended that 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 the 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 exhibit D-3 to exhibit D-12. The said entries are not tantamount to the acknowledgement of liability. The last entry in connection therewith is dated 11-12-1980, on which date payment of Rs. 1 lakh was made to defendant No. 1. The said payments have been adverted to in para 3 of the plaint. Assuming arguendo, even if the period of limitation of three years is computed from the last payment still the present suit is not within time inasmuch as the same was filed on 20-1-1984. 23. The learned counsel for the plaintiff has then during the course of his arguments also tried to seek sustenance from a letter dated 23-1-1981, written by Shri Raj Rattan Bhalla who was then acting as the managing director of defendant No. 1 company to the plaintiff (vide exhibi....
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....rchase 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. 25. The learned counsel for the defendant, Mr. Ishwar Sahai, senior advocate, has refuted the said contention. He has contended that the said agreement dated 24-1-1981 (exhibit P.W.6/1), was for the purchase and sale of the shares. Defendant 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 a company 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, ....
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....angement; 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." 27. Admittedly, defendant Nos. 2 and 3 wanted to purchase the majority of the shares of defendant No. 1. Thus with the said end in view they must have entered into an agreement dated 24-1-1981, vide exhibit P.W.6/1 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. 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, defendant No. 1 have challenged only the four payments, i.e., the payments of Rs. 30,000 dated 2-11-1979, Rs. 20,000 dated 7-5-1980, Rs.....
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....s, 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 P.W.4, Shri P.K. Bhalla). 32. Shri P.K. Bhalla (P.W.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 P.W. 6 Shri R.R. Bhalla in his statement on oath. 33. Shri P.K. Bhalla (P.W.4) has admitted during the course of cross-examination that being the secretary of 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 contented himself by pretending ignorance. This fact further becomes relevant in view of the fact that on being asked he was unable to tell that he never issued any such recei....
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....ncashment 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. 37. Another payment, i.e., for Rs. 35,000 is alleged to have been made in cash, vide receipt exhibit P.W. 4/2, dated 10-8-1980. There is an entry to that effect in the cash book of the plaintiff-company, vide exhibit P.W. 2/1. P.W.-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 6-2-1981 (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.....
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....e to be completed under the new management which came to the hands of defendant 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 reason as to why no entries were made with regard to the payments in question in the account books of defendant No. 1. 40. This brings me to the fourth 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. 41. 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 plain....