TaxTMI 
TaxTMI 
2016 (5) TMI 1606
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....original plaintiff. 2. To appreciate the case of the appellants it would be necessary to consider the plaintiff's/Respondent No. 1's case as contained in the plaint. For the sake of convenience, in considering the plaint, we refer to the parties as arrayed in the plaint. Plaintiff's case in the plaint:-- 3. The Plaintiff's suit is inter alia for the recovery of the amount aggregating to Rs. 680,239,7,706.55 to be jointly and/or severally ordered and decreed to be paid by defendant Nos. 1 to 16 alongwith interest at 18% p.a. as per particulars of claim annexed as Exhibit 'U' to the plaint and for a further relief that defendant No. 20 be ordered and decreed to pay to the plaintiff a sum of Rs. 29.20 crores along with interest at 18% p.a. from the due date of payment and/or realization thereof as per prime zone agreement dated 10 February 2013. 4. As seen from the averments made in the Plaint, the Plaintiff is a company incorporated under the Indian Companies Act, 1956 which carries on business as a "Spot Exchange", providing for an electronic trading platform in spot contracts in commodities on delivery basis. The Plaintiff commenced its business ....
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....f's exchange and other members of the plaintiff exchange. Trading at the plaintiff's exchange took place on the basis of this contract. The trading members were permitted to purchase and sell the commodities on the Exchange platform in the manner and on the terms as specified in the contracts. The plaintiffs permitted defendant No. 1 to trade on its exchange platform in contracts of various commodities. All trades conducted on the plaintiff's exchange were through the accounts which were held by defendant No. 1 in the HDFC Bank-New Delhi, HDFC-Ludhiana and State Bank of India-Karnal Branch details of which are set out by the Plaintiff in paragraph 6(d) of the plaint. These bank accounts would demonstrate that moneys were received by defendant No. 1 towards trades entirely executed by it on the exchange platform. 7. The case of the Plaintiff is that the defendant No. 1 was trading in paddy in Haryana and Punjab and has been executing T+2 and T+25 trades on the plaintiff's exchange. (T+2 would mean trade is concluded on "T" day and delivery and payment would be effected on second business day from "T" day by selling and buying member as the case may be and for T+25....
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.... the warehouses though it was mandatory under the rules of the plaintiff exchange. An audit at the hands of SGS India Limited was prevented to be undertaken by the defendant No. 1. The plaintiff called upon the defendant No. 1 to make payment which had become due and payable for the outstanding trades undertaken by it on the plaintiff's exchange as settlement period had come to an end and trades were required to be settled vis-à-vis various buyers and sellers. It is the case of the plaintiff that from 19 July 2013 onwards the defendant No. 1 failed to make payment and as such had defaulted in payment of the installment amount. The plaintiff in accordance with the bye-laws and rules of the plaintiff took further steps to declare the defendant No. 1 and other similar trading members as defaulters. 10. The plaintiff has averred that the defendant No. 1 on behalf of itself and on behalf of its clients had admittedly entered into outstanding trades and was liable to pay the amounts that had fallen due thereunder along with interest at 18% p.a. from due dates until payment and/or realization thereof. Defendant Nos. 1 to 4 had acted upon the outstanding trades received benef....
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....ice had arrested the then Director of defendant Nos. 1 to 4, Mr. Sunder Gupta and on 5 July 2014 holding him responsible for the defaults committed on plaintiff exchange by the defendant Nos. 1 to 4. It is averred that defendant Nos. 1 to 4 have siphoned off the amounts and utilised the same towards buying real estate and towards producing movies. It is averred that the defendant Nos. 1 to 4 in connivance with defendant Nos. 5 to 16 will deal with the assets which are in their control and possession and exchange their moneys and/or their assets in such manner to defeat the claim of the plaintiff exchange. The defendant Nos. 5 to 16 as Directors/shareholders are in effective control of defendant Nos. 1 to 4 and are therefore in charge of the day-to-day affairs of defendant Nos. 1 to 4. Further inquiries by Economic Offences Wing indicates that persons in-charge of defendant Nos. 1 to 4 have utilized the moneys and that with ulterior motives and are seeking to defeat the claim of the plaintiffs. It is therefore, necessary, expedient and in the public interest as well as interest of all the stake holders that the claim of the plaintiff is required to be secured by restraining the defe....
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.... issue an injunction/direction/order restraining the Defendant Nos. 1 to 16 from disposing of, alienating, encumbering, parting with possession of and/or otherwise creating third party rights in respect of their movable and immovable assets as would be disclosed by the Defendant Nos. 1 to 16 in terms of prayer clause (f) above; l. pending hearing and final disposal of the suit, this Hon'ble Court be pleased to issue an injunction/direction/order restraining the Defendant Nos. 1 to 16 from and in any manner dealing with the funds deposited by them in various Banks as may be disclosed to this Hon'ble Court in accordance with prayer (f) above; m. An injunction restraining Defendant Nos. 1 to 16, their agents, representatives from dealing with, selling, transferring, alienating creating third party rights, in respect of and/or encumbering their movable/immovable properties/assets mortgaged/charged which may be disclosed as in possession and/or control of various Banks in any manner whatsoever; (p) An order appointing the Court Receiver, High Court, Bombay, with all powers under Order 40 Rule 1 of the Civil Procedure Code, of the assets of the Defendan....
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....ective Notices of Motion to reject the plaint qua Defendant Nos. 14 and 15 is basically on the contentions that there are vague and unsubstantiated allegations against these defendants in paragraphs 2,7, 9, 14, 15 and 27 of the plaint. As the entire case of the Appellants is based on the averments as contained in these paragraphs, it would be relevant as also convenient to extract the contents of these paragraphs which read thus:-- "2. ..... ... ... The acts leading to the defaults committed on the Plaintiff Exchange could not have occurred without the knowledge and active participation of these Defendants. As will be demonstrated herein below, the Defendant Nos. 5 to 16 have utilized the corporate structure and identities of Defendant Nos. 1 to 4 for their own personal gain and are the real beneficiaries of the defaults that have occurred on the exchange platform. ... ......" 7. (zz)... ... ... The Defendant Nos. 5 to 16 are the Directors and shareholders of Defendant No. 1 and 4 respectively and are in charge of and responsible for the affairs of the Defendant No. 1 to 4, and as such, they are also liable to jointly and/or severally pay the amounts due from the ....
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....tanding amounts as required, the Economic Offences Wing of the Mumbai Police have arrested the then Director of Defendant Nos. 1 and 4 i.e. Surender Gupta on 5th March 2014 holding him responsible for the defaults created on the Plaintiff Exchange by Defendant Nos. 1 to 4. It is pertinent to mention that the investigating authorities namely Economic Offences Wing and Enforcement Directorate have stated in various newspaper articles that Defendant Nos. 1 to 4 have siphoned off the aforesaid amounts and utilized the same towards buying real estate and towards producing movies. In view of the above, the Plaintiff apprehends that, the Defendant No. 1 to 4 in connivance with Defendant Nos. 5 to 16 will deal with the assets in their control and possession and therefore exhaust the monies and/or their assets in such manner to defeat the claim of the Plaintiff's Exchange. The Defendant Nos. 5 to 16, as Directors/Shareholders/Company Secretary, are in effective control of Defendant Nos. 1 to 4 and are therefore in charge of the day to day affairs of the Defendant Nos. 1 to 4. It is submitted that the enquiry by the EOW clearly indicates that the persons in charge of Defendant Nos. 1 to ....
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....efendant No. 1 and Defendant No. 4 are sister concern and therefore, effectively under common management and secondly it appears that the Directors of Defendant No. 1 and Defendant No. 4 have made categorical admission in relation to the diversion of the monies received from the trades executed on the Plaintiff Exchange. The Plaintiff states that the Enforcement Directorate and the EOW are both statutory authorities. 15. The Plaintiff states that Defendant Nos. 5 to 16 have clearly benefited from the defaults that have occurred on the exchange platform. The Plaintiff states that the Defendant Nos. 5 to 16 as shareholders and directors of Defendant Nos. 1 to 4 have benefited from the monies deposited in the Bank Accounts of Defendant Nos. 1 to 4. Without prejudice to the above, the Plaintiff states that the Defendant Nos. 1 to 4 are in fact simply vehicles to perpetuate the illegalities which were conceived by Defendant Nos. 5 to 16 and which illegalities were of the sole benefit of Defendant Nos. 5 to 16." 16. The Defendant Nos. 14 and 15's case is that the above averments lack credible details so as to seek a relief against defendant Nos. 14 and 15 and defendant No....
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....leges) Act, 1958. Defendant No. 15 also pleaded that the allegations made against defendant No. 15 in the plaint were vague, ambiguous and lacked specific particulars and were in complete disregard to the requirements of Order 7 Rule 11 showing no cause of action as also requirement of Order 6 Rule 4 of C.P.C. in relation to the allegation of fraud. 18. The learned single Judge by the impugned order has rejected the notices of motions filed by defendant Nos. 14 and 15 repelling the contentions as urged on behalf of defendant Nos. 14 and 15. The learned Single Judge held that the averments made in the plaint as read in its entirety clearly reveals a cause of action against defendant Nos. 14 and 15. The learned Single Judge held that the case in the plaint against Defendant Nos. 14 and 15 was of fraud and collusion and siphoning of fund. It is observed that substantial reliefs are prayed against the defendants jointly and severally to pay the Plaintiffs the amounts as claimed in the suit. As regards the contentions on the part of defendant Nos. 14 and 15 that the averments in the plaint against these Defendants including allegation of fraud are vague and not specific and have also....
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....ance on the these decisions in the case of Rajkot Municipal Corporation V. Manjulben Jayantilal Nakum & Ors. (1997(9) SCC 552); "Mr. Rajiv K. Mehta v. Mrs. Rekha H. Sheth" Judgment of Bombay High Court dated 24.3.2014 delivered in Notice of Motion No. 368 of 2011 in Suit No. 2521 of 2008; S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & Anr. (2005)8 SCC 89; Mukesh Hans & Anr. v. Smt. Uma Bhasin & Ors. Judgement of Delhi High Court dated 16.8.2010 delivered in REA 14/2010 and CM No. 495/2010; Church of Christ Charitable Trust v. Ponniamman Educational Trust (2012)8 SCC 706; Om Prakash Khaitan v. Shree Keshariya Investment Ltd. (1978 Company Cases Vol.48 ); Shri. Amba Motors Agencies Pvt. Ltd. v. Registrar of Companies decided on 18.10.1978 1978 Company Cases (Delhi) 89 ; Bishundeo Narain & Anr. v. Seogeni Rai & Ors. (AIR 38 1951 Supreme Court 280); Liverpool & London S.P.&1 v. M.V. Sea Success Land & Anr. (2004)9 SCC 512. 21. On the other hand on behalf of Respondent No. 1/plaintiff Dr. Saraf would submit: "(i) that the contentions as urged on behalf of the appellants are wholly misconceived as the plaint is required to be read as a whole which makes it clear that the defen....
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....the plaint, the impugned order passed by the learned Single Judge and the respective notices of motions as filed by defendant Nos. 14 and 15 before the learned single Judge and pleadings in that regard. As the issue as raised is whether the plaint was required to be rejected against the Defendant Nos. 14 and 15, what would be relevant is as to whether a complete reading of the plaint whether discloses a cause of action against Defendant Nos. 14 and 15. 23. Having perused the plaint, we have noted above the relevant averments in the context of the issues as arising in the present appeal. The averments in the plaint indicate that this is a composite suit where the plaintiff has sought reliefs of recovery of the money claimed against the defendants on contract as also by way of damages being a liability under the torts. This is clear from several averments of connivance between the defendants and the joint and several liability arising for payment as claimed by the Plaintiff's in making the suit claim. 24. In the context of these issues, the provisions of Order 1 of the Code of Civil Procedure, 1908 need to be noted which pertains to parties to a suit. Order I Rule 3 is as r....
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....nt Nos. 14 and 15 seek a relief is Order 7 Rule 11 of the CPC which provides for rejection of plaint and reads thus: "11. Rejection of Plaint- The plaint shall be rejected in the following cases: (a) where it does not disclose a cause of action (b) where the relief claimed is under valued and the plaintiff on being required by the Court to so correct the valuation within a time to be fixed by the Court fails to do so, (c) where the relief claimed is properly valued by the plaintiff is written upon paper insufficiently stamped and the plaintiff on being required by the Court to supply the requisite stamp paper within a time to be fixed by the Court fails to do so. (d) where the suit appears from the statement in the plaint to be barred by any law." Relying on Order 7 Rule 11(a), defendant Nos. 14 and 15/contend that plaint is liable to be rejected qua these defendants as it does not disclose cause of action and more particularly for the reason that there are no material particulars in the plaint to show any connivance, collusion, fraud as alleged to be committed by these defendants as regards the transactions of Defendant No. 1 on the ....
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.... on behalf of defendant Nos. 14 and 15. A holistic reading of the plaint would demonstrate that the plaintiff has impleaded defendant Nos. 14 and 15 who were directors and shareholders of defendant No. 4 so as to seek a relief against these defendants. The plaintiffs have made averments in the plaint that at the relevant time defendant Nos. 14 and 15 were in-charge and responsible for the affairs of defendant No. 4 and as such they were also liable to jointly and/or severally pay amounts due from defendant Nos. 1 to 4 to the plaintiff which was in fact the moneys of the counter-parties dealing on the exchange as set out in para 7 (zz) of the plaint. It is pertinent that the plaintiff in para 7 (zz) of the plaint has made categorical averments that defendant Nos. 1 to 4 in collusion with erstwhile managing director of the plaintiff and some of the managerial staff who directly reported to him, have orchestrated and played a fraud on the plaintiff and counter parties to the outstanding trades, by seeking to represent and assure that the commodities held thereunder have been duly deposited in warehouses designated by the plaintiff which representations were false to their own knowledg....
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....e stated in various newspapers articles that defendant Nos. 1 to 4 have siphoned off the aforesaid amounts as claimed by the plaintiffs in the suit and utilized the same towards buying real estate and towards producing movies. In this context, the plaintiff have stated that defendant Nos. 1 to 4 in connivance with defendant Nos. 5 to 16 would deal with the assets in their control and possession and therefore, exhaust monies and/or assets in such a manner to defeat the claim of plaintiff's exchange. It is stated that defendant Nos. 5 to 16 as Directors/shareholders are in effective control of defendant Nos. 1 to 4 and are therefore, in-charge of day-to-day affairs of defendant Nos. 1 to 4 and that enquiry of the Economic Offences wing clearly indicates that persons in charge of defendant Nos. 1 to 4 have utilized their monies for ulterior motives and/or are seeking to defeat and defraud the claim of the plaintiffs. This was borne out by the fact that the Economic Offences wing had arrested Mr. Surendra Gupta Managing Director of defendant No. 1. 30. Thereafter, in para 15 of the plaint, the plaintiff have averred that defendant Nos. 5 to 16 have clearly benefited from the def....
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.... responsible for affairs of defendant Nos. 1 to 4 and thus were liable jointly and/or severally to pay the amounts due from defendant Nos. 1 to 4 to the various counter parties investors under outstanding trades. The specific allegation is that defendant Nos. 1 to 16 had already disposed/siphoned/shifted off the commodities located in the warehouses whereby committed a grave breach of trust and thereby willfully defaulted towards its obligations on the plaintiff 's exchange. The plaintiff have further stated that this large scale defaults and fraud was also a subject matter of investigation of Economic Offences wing (EOW). Articles appeared in newspapers on this investigation of the EOW which further high-lighted that defendant Nos. 1 to 4 and their management namely defendant Nos. 5 to 16 were responsible for siphoning the amount outstanding to the plaintiff. The case of the plaintiff that these acts of defendants committing fraud on the plaintiff's exchange could not have occurred without the knowledge and active participation of the defendants. 32. The case of the plaintiff is also that the amounts siphoned by defendant Nos. 1 to 4 again by playing fraud on the plaint....
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....be rejected by the Court for want of cause of action against defendant Nos. 14 and 15 in exercising powers under order 7 Rule 11 of the CPC. 34. Now coming to the contention as urged on behalf of the appellants that there is a specific requirement under the provisions of Order 6 Rule 4 that the allegation of fraud, collusion was required to be specifically pleaded with all supporting material and the plaint lacks these averments and thus the plaint deserves to be rejected against the appellants in our view, is also misconceived for two reasons: firstly, for the reason that fraud which is played on the plaintiffs is by defendant Nos. 1 to 4. Defendant Nos. 1 to 4 admittedly are Corporate entities acting through Directors namely appellants and others. It is not in dispute that at the relevant time, defendant Nos. 14 and 15 were Directors of defendant No. 4. An averment is made that in fact they were responsible for the day-to-day affairs of the management of defendant No. 4. Further, there is an averment in the plaint that these directors are the beneficiaries of the illegalities and fraud which is perpetuated by defendant No. 4 as also they are beneficiaries of the amounts which ....
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....agnitude and the complexities of the transactions are also of peculiar nature. The interest of the Plaintiff in this case certainly includes interest of large number of traders/and several other connected persons who are directly or and/or indirectly related and concerned with these transactions. Thus, the plaintiff's interest also bears a interest of large number of investors who have entered into bonafide transactions and which transactions failed on account joint and several acts on the part of the Defendants as contented in the plaint. 37. As regards the contention as raised on behalf of the defendant Nos. 14 and 15 that they are nominee Directors and therefore, they cannot be held liable for any contractual defaults on the part of the company, we see no merit in this contention. The learned single Judge has rightly observed that such a contention can never be a ground for rejecting the plaint and/or striking name of the defendant Nos. 14 and 15 as it can never be an absolute proposition that there can never be any action whatsoever against nominee Directors or even if Directors have played a fraud. The averments in the plaint in that regard cannot be overlooked which ar....
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....and cannot constitute an express or implied bar on the jurisdiction of the Civil Court. A learned Single Judge of this Court in the case of "Goa Industrial Development Corporation v. Sadhana Builders Pvt. Ltd., (2014)5 BCR 135" in adverting to the principles of law laid down in "Popat and Kotecha Property v. State Bank of India Staff Association, (2005)7 SCC 510" has observed that the immunity cannot be claimed when there is a pleading of fraud and collusion, and that while deciding an application under Order 7 Rule 11 the Court cannot decide the disputed question of fact and law and, thus, even a plea of such immunity would become a mix question of law and fact would be decided at the trial of the suit. 39. In our view, this is a case where the facts speaks for themselves as seen from the averments in the plaint which indicate that it is not only the contract entered by the Plaintiff with Defendant No. 1 which has given rise to the cause of action for the suit but something which is beyond the contract and involving actions of Defendant Nos. 2 to 16 which are all interconnected. The plaint pleads of a large scale and well thought-out design to cause losses to the Plaintiffs in ....
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.... view, is not correct. As the pleadings are not to be strictly interpreted in the manner in which the each and every allegations is brought out in the plaint, what is necessary is to plead all material and relevant facts on which the case of the Plaintiff would stand. Also in Ramswaroop Gupta v. Bishun Narayan & Anr., AIR 1987 SC 1242" (Read) their Lordships have observed that the pleadings should receive a liberal construction, no pedantic approach should be adopted to defeat justice on hair-splitting technicalities. It is held that whenever the question about lack of pleadings is raised, the enquiry should not be so much about the form of the pleadings but the endeavour of the Court should be to ascertain the substance of the pleadings. In ascertaining whether the plaint shows cause of action, the Court is not required to elaborate the inquiry in the doubtful or complicated question of law and fact. The endeavour of the Court would be to ascertain whether on the allegations a cause of action is shown and so long as the plaint discloses the same cause of action, and so raises a question, fit to be decided by a Judge. Order 7 Rule 11(a) of C.P.C. though would confer a power on the ....
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....last argument on behalf of the petitioner may be stated thus. The cause of action against the original defendant is based on contract while the cause of action against the other defendants is based on tort. Causes of action so differently based cannot be joined. I am not prepared to accept this view. There is nothing in the provisions of the Code of Civil Procedure which supports it. As pointed out above the Code permits a joinder of different causes of action against different defendants. The fact that so far as the different defendants are concerned, their liability arises out of their different legal relationships with the plaintiff would not, in my opinion, bar this suit and drive the plaintiff to institute separate suits. Order 1 R.3 and O.2 R.4 are directed towards avoiding multiplicity of litigation. What would be the result of giving effect to the view propounded/The plaintiff would first have to institute a suit, against defendant 1 alone and establish a breach of contract. If he succeeded in so doing, he would then have to institute another suit against defendant 1 and the added defendants and again establish, first, the breach of the contract because the other defendants....
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....dent depends on a different cause of action though it is for the same damage. It is not claimed that the appellant should recover his damage twice over." The claim against both retailer and manufacturer was upheld. This principle would apply to the present case. 19. I would also refer to the case of Frankenburg V. Great Horseless Carriage Co. (1900)1 QB 504 at p.509 : (69 LJ QB 147) where the Court of Appeal refused to give effect to a similar technical objection. They said: "In substance the shareholder had one grievance. Call its cause of action or what you like, and in substance he has cue complaint and all the persons he sues have, according to him been guilty of conduct which gives him a right to relief in respect of that one thing which they have done, namely, the issuing of a prospectus." The position here is the same. The plaintiff has one grievance viz. That the contract has been broken and he alleges that all the defendants have joined or conspired together in causing this breach. I can see no reason why one suit against all should not be allowed." 43. Further in this context on behalf of the Appellants the reliance on the decision in Rajkot ....
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....ich he is a Director unless so authorised. In the legal position as a Company stands, the Directors of the Company would have no fiduciary or contractual duty towards a third party who deals with the company. However, as observed by us above, the present case is not a case which merely rests on the contractual terms but according to the plaintiffs, it is a collusion fraud and the defendants becoming beneficiaries of such acts. It is for these reasons, the normal role of a Director in the normal course, as canvassed on behalf of the defendant Nos. 14 and 15/Appellant would not become applicable in the facts of the present case. In considering such pleas, the facts and circumstances as borne out in the pleadings in each case are required to be considered so as to determine as to whether any cause of action is made out or otherwise before exercising power as conferred under Order 7 Rule 11(a) of C.P.C. 45. The Appellants reliance on the decision of the Supreme Court in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & anr) (2005) 8 SCC 89 is in support of their submission that merely because the Appellants were Directors of Defendant No. 4 Company, there cannot be any monet....
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....f the learned Counsel for the Plaintiff on the decision of the learned Single Judge of the Delhi High Court in the case of "Deepak Ansal v. Ansal Properties and Industries Ltd. & Anr." (supra) and also the decision of the learned Single Judge of this Court in "Clarinda D'Souza v. Mccann Erickson India Ltd." (supra) is well founded inasmuch as the Court would be required to consider all the averments in the plaint in relation to the reliefs as prayed for in the suit. In the present case as we have noted above there are sufficient averments for us to conclude that interference under the powers of the Court under Order 7 Rule 11(a) read with Order 1 Rule 10(2) is not warranted at this stage. 48. In view of our above observations, the reliance in the decision of "Church of Christ Charitable Trust and Educational Charitable Society v.Ponniamman Educational Trust, (2012)8 SCC 706" would also not assist the Appellants. We are in complete agreement with the contentions as urged on behalf of the Plaintiff/Respondent No. 1 that the plaint has made out a cause of action against defendants Nos. 14 and 15. The reliance on the part of the Plaintiff on the decision of the Supreme Court in ....