KOHLI ONE HOUSING & DEVELOPMENT PVT LTD vs C.S. AGARWAL AND OTHERS
$~21
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 03.10.2023
Date of decision: 11.10.2023
+ CS(OS) 76/2010, CCP(O) 95/2011, CCP(O) 125/2011, I.A. 7907/2012 (additional documents), I.A. 18365/2013 (Order XI Rule 12&14, CPC), I.A. 2737/2014 (Order VI Rule 17, CPC), I.A. 7910/2019 (Order XXXIX Rule 1&2, CPC), I.A. 7911/2019 (Order XI Rule 1, CPC), (I.A. 12991/2019 (Directions), I.A. 9709/2021 (Order I Rule 10(2), CPC), I.A. 11863/2021 (Order I Rule 10(2), CPC), I.A. 12631/2021 (Order XXXIX Rule 10, CPC & Order XXXVIII Rule 5, CPC), I.A. 13369/2022 (early hearing of I.A. 7910/2019), I.A. 22135/2022 (directions), I.A. 15187/2023 (directions (D-4)) & I.A. 15910/2023 (early hearing of I.A. 7910/2019)
KOHLI ONE HOUSING & DEVELOPMENT PVT LTD ….. Plaintiff
Through: Mr. Amit Sibal, Mr. Chander M. Lall, Sr. Advs. with Mr. Shaunak Kashyap, Mr. Balasubramanian R. Iyer, Ms. Muskan Yadav, Mr. Kartikaya Gautam, Advs.
versus
C.S. AGARWAL AND OTHERS ….. Defendants
Through: Mr. Ankit Jain, Adv. for D-2.
Mr. T.K.Ganju, Sr. Adv. with Mr. Rohit Gandhi, Mr. Hargun Singh Kalra, Ms. Akshita Jain, Mr. Kartik Jain, Advs. for D-4 to 7, 9, 11 & 13.
Mr. Mohit Gupta, Ms. Aayushi Jain, Advs. for proposed D-14, 15, 17, 18 & 20.
Mr. Varun Nischal, Mr. Shubham Sharma, Advs. for D-16 & 19.
Mr. P.V.Kapur, Mr. Vikas Dhawan, Sr. Advs. with Mr. Bharat Gupta, Mr. Varun Tyagi, Mr. Sidhant Kapur, Ms. Kaveri Kapur, Mr. Dhananjay Sahai, Advs. for proposed defendant no.21.
Mr. Rahul Malhotra, Mr. Arpit Dwivedi, Advs. for proposed D-22 to 25.
Mr. Rishi Manchanda, Adv. for D-2(b) & (d).
CORAM:
HON’BLE MS. JUSTICE REKHA PALLI
REKHA PALLI, J
JUDGMENT
O.A. 46/2019 & IA No. 7673/2015
1. This order disposes of I.A. 7673/2015 filed by the plaintiff seeking impleadment of legal heirs of defendant no.2/Sh. D.K. Jain as also Chamber Appeal being OA 46/2019 under Rule 5, Chapter II of the Delhi High Court (Original Side) Rules, 2018 preferred by the proposed legal representatives 2(A), 2(B) and 2(D) of defendant no.2. Vide OA No. 46/2019, the appellants seek to assail the order dated 04.02.2019 passed by the learned Registrar in FAO (OS) 534/2014 and RFA (OS) 126/2014 allowing the plaintiffs application for impleadment of legal heirs of defendant no.2. Though FAO (OS) 534/2014 and RFA (OS) 126/2014 already stand disposed of on 11.02.2019, the Division Bench, while disposing of these appeals had directed this Court to decide OA 46/2019. As this Chamber Appeal raises identical issues as have been raised in I.A. 7673/2015, the same are being decided together vide this order.
2. Before dealing with the rival submissions of the parties, the brief factual matrix as is necessary for adjudication of the chamber appeal as also of I.A. 7673/2015 may be noted.
3. As per the case set up in the plaint, the plaintiff is a company incorporated under the provisions of the Companies Act, 1956 and is primarily engaged in the business of real estate development and construction. The defendant no.1/Sh. C.S. Agarwal, claiming to be a director of defendant no.3 approached the directors of the plaintiff in May 2007 with a proposal to co-develop a Multi-services Special Economic Zone(SEZ) on a land ad-measuring 100 hectares located in Sidhrawali Village on National Highway-8, Delhi-Jaipur Highway, Manesar District, Gurgaon, Haryana. It is averred that the defendant no.1 claimed to own and control numerous companies under the brand name Rockman Group with varying businesses including the development of SEZs. During his meetings with the plaintiff, the defendant no.1 informed the plaintiffs that the defendant no.3 possessed and controlled large parcels of land in Gurugram (250 acres), Jaipur(2500 acres) and Ludhiana (250 acres).
4. Based on these representations made by the defendant no.1, who also produced a copy of the Board Resolution of the defendant no.3 company signed by its other director/defendant no.2 authorizing him to negotiate in respect of proposed SEZ at Gurugram, the plaintiff, on 18.06.2007,entered into a Memorandum of Understanding (MoU) with the defendant no.3as per which MoU the SEZ was to be developed through a Special Purpose Vehicle (SPV). It was agreed that the plaintiff would pay a sum of Rs. 185,00,00,000/- to the defendant no.3 in instalments for acquisition of 74% shareholding in the SPV.As per the MoU, it was for the defendant no.3 to obtain, on or before 31.12.2008, a notification from the Government of India declaring the land as SEZ failing which the plaintiff would be at the liberty to seek refund of the amount paid by it.
5. In terms of the MoU, the plaintiff advanced a sum of Rs. 43,00,00,000/- to the defendant no.3 in two installments of Rs. 40,00,00,000/- and 3,00,00,000/-. However, since the defendants did not obtain the necessary notification from Government of India by 31.12.2008, the plaintiff sought refund of the amount from the defendant nos. 1 to 3. On the same date, a number of public notices issued by defendant no.2 appeared in various newspapers stating therein that he had signed a letter of authority and certain blank papers in favor of defendant no.1 when he was hospitalized, which authority letters, he was now cancelling/revoking. It is the plaintiffs case that these notices were issued by defendant no.2 in collusion with defendant no.1, the only aim thereof being to wriggle out of the obligation under the MoU to refund the amount to the plaintiff.
6. Upon repeated representations being made by the plaintiff for refund of the sum of Rs.43,00,00,000/-, the defendant no.3issued three cheques for a total sum of Rs. 1,30,00,000/-. However, only one of these cheques, which was for a sum of Rs. 30,00,000/- could be encashed as the other two cheques were dishonoured. As per the plaintiff, it is at this stage that it learnt that the defendant no.3, instead of returning the money advanced by the plaintiff had been, through its directors, defendant nos. 1 & 2, diverting funds to defendant nos. 4 to 13, which were sister concerns of defendant no.3 and were controlled by defendant no.2. It is in these circumstances that the plaintiff has preferred the present suit seeking recovery of a sum of Rs. 42,70,00,000/- along with interest from the defendants.
7. During the pendency of the present suit, while the defendant nos. 4 to 13 preferred an application being I.A. 6063/2010 under Order VII Rule 11 CPC seeking rejection of the plaint, the plaintiff filed an application being I.A. 2737/2014 under Order VI Rule 17 CPC seeking amendment of the plaint. On 28.05.2014, this Court, while adjourning I.A. 2737/2014, reserved orders in I.A. 6063/2010. Being aggrieved, the defendant nos.1 & 3 preferred an appeal being FAO (OS) 282/2014 with a grievance that while reserving orders in I.A. 6063/2010, the Court had, without hearing any arguments, also reserved orders in I.A. 828/2010, which was an application for interim relief filed by the plaintiff. The order dated 28.05.2014 was also assailed by the plaintiff by way of FAO (OS) No. 280/2014 with its grievance being that the application seeking amendment of the plaint ought to have been decided at the first instance.
8. Both the aforesaid appeals, i.e., FAO (OS) 282/2014 and FAO (OS) No. 280/2014 were disposed of vide a common order dated 01.07.2014 granting liberty to the plaintiff to approach the learned Single Judge for adjudication of its application under Order VI Rule 17 CPC in the first instance. However, before an application in this regard could be moved by the plaintiff, this Court on 02.07.2014, pronounced orders in I.A.6063/2010,allowing the application under Order VII Rule 11 CPC filed by the defendant nos. 4 to 13, thereby rejecting the plaint against the defendant nos. 4 to 13 and dismissing the application filed by the plaintiff under Order VI Rule 17 CPC.
9. Being aggrieved, the plaintiff preferred an appeal being RFA (OS) 126/2014 against the rejection of the plaint against defendant nos. 4 to 13 and also simultaneously filed an appeal being FAO (OS) 534/2014 against the dismissal of its application under Order VI Rule 17 CPC. While these two appeals were pending, the defendant no.2 expired on 13.03.2015, leading to the filing of an application under Order XXII Rule 4 CPC by the plaintiff to bring on record the legal heirs of defendant no.2, which application was allowed by the learned Registrar on 04.02.2019. Consequently, the four legal heirs of defendant no.2 were impleaded as defendant nos. 2(A) to 2(D). On 11.02.2019,the Division Bench disposed of RFA (OS) 126/2014 and FAO (OS) 534/2014, by setting aside the order dated 02.07.2014 passed by this Court and directed that the amendment application being I.A. 2737/2014would be taken up by this Court along with I.A. 6063/2010 with a specific direction that the amendment application shall be heard at the first instance. Taking into account that the interim order passed against defendant nos. 4 to 13 automatically stood vacated upon rejection of the plaint, the learned Division Bench also granted liberty to the plaintiff to move a fresh application under Order XXXIX Rule 1 and 2 CPC, if so advised. Furthermore, taking note of the plea of the learned counsel for the legal representatives of the defendant no.2 that a Chamber Appeal against the order passed by the learned Registrar impleading them as defendants in the suit, was being filed, directed that the said appeal, when filed would be listed before this Court. It is in these circumstances that this Court has taken up for consideration, this Chamber Appeal being OA 46/2019 along with the plaintiffs application being I.A. 7673/2015 seeking impleadment of the legal representatives of defendant no.2.
10. In support of the appeal and opposition to I.A. 7673/2015, Mr. Ankit Jain, learned counsel for the appellants begins by contending that the learned Registrar, while passing the impugned order has erroneously impleaded the legal heirs of defendant no.2 without appreciating the fact that after his death, the right to sue did not survive. He submits that the MoU dated 18.06.2007, based on which the present suit has been filed by the plaintiff, was admittedly executed between the plaintiff company and defendant no.3. The defendant no.2, who was neither a party nor a signatory to the aforesaid MoU, could not be fastened with any liability arising out of the execution of the aforesaid MoU. By placing reliance on the decision in Tristar consultants vs. Vcustomer Services India Pvt. Ltd., J.K. Investment Trust Ltd. &Ors. Vs. Muir Mills Co. Ltd. (1960) SCC Online All 143 and Montage Advertising P. Ltd. Vs. Shree Giri Raj Kripa Colonisers P. Ltd &Anr., (2009) SCC Online Del 285, he submits that the learned Registrar, while allowing the plaintiffs impleadment application, failed to appreciate that a company is a separate legal entity and a director is only one of the officers of the said legal entity. The defendant no.2 was admittedly only a director in the defendant no.3 and therefore, his acts on behalf of the defendant no.3 company would not bind his legal heirs. He, therefore, contends that after the death of defendant no.2, the right to sue against his legal heirs did not survive in the facts of the present case.
11. He next places reliance on a decision of the Division Bench in Nirmal Jain and Ors. vs. Ahuja Impex Pvt. Ltd. &Ors. 2016 SCC Online Del 6222 and submits that like in the present case, the very same appellants had been wrongly impleaded as legal representatives of the very same defendant no.2/Sh. D.K Jain by the learned Single Judge on account of his being a director in the company against which the suit had been filed. The Division Bench, while setting aside the order of impleadment passed by the learned Single Judge held that a company is a juristic entity independent from its directors and therefore a director cannot be held liable for the dues of the company unless an express contract of guarantee or an undertaking to that effect had been filed by him. It was held that any claim for fraud, misrepresentation, malfeasance or misfeasance was personal to the concerned director, i.e., late Sh. D.K. Jain and therefore his legal representatives could not be impleaded in the suit on the basis of these allegations. He submits that, similarly, in the present case, when the suit is based on MoU dated 18.07.2006, to which the defendant no.2 was admittedly neither a party nor a signatory, his legal representatives cannot be impleaded as defendants in the suit.
12. He further submits that the purported fraud, if any, committed by defendant no.2 would fall within the realm of tortious liability which claim is always personal in nature and could not survive upon the demise of the said defendant. By placing reliance on a decision of the Division Bench in Bhai Analjit Singh vs. Mitsui and Co. Ltd., (2009) 108 DRJ 217 he submits that the defendant no.2 therein was accused of having jointly and severally played fraud on the plaintiff by misappropriating the advance amount paid by it for purchase of the property in question. The defendant no.2 was impleaded on the ground that it was on the basis of the representation of the said defendant that the plaintiff and defendant no.1 had entered into a contract for sale. The Division Bench, after considering the averments made in the plaint, observed that the defendant no.2 came into the picture for limited purposes of making certain representations based on which the plaintiff and defendant no.1 entered into a contract and therefore such misrepresentations at best, could be said to have been in the realm of tort and not that of contract. In the present case, the only case set up by the plaintiff against the defendant no.2 is that the MoU was executed between the plaintiff and defendant no.3 on the basis of a board resolution, to which the defendant no.2 was a signatory. He submits that this could not be a ground to hold that the defendant no.2 was a beneficiary to the amount which was advanced to defendant no.3, an independent juristic entity and therefore contends that the appellants could not be impleaded in the suit.
13. By drawing my attention to the averments made in the plaint, Mr. Jain submits that it is evident that the entire claim was against defendant no.1 and defendant no.3 and not against defendant no.2. In the plaint, the plaintiff has itself alleged that the MoU was executed between the plaintiff and defendant no.3 on the basis of the representation made by defendant no.1, who met with the directors of the plaintiff company and claimed to have own and control numerous companies under the Rockman Group. It is based on these assurances given by the defendant no.1 that the MoU was executed between the parties. Furthermore, the plaintiff has itself stated that the cheques of the advance amount of Rs. 43,00,00,000/- paid by it were received and encashed by defendant no.3. On the other hand, the defendant no.2 had no connection with the representations made to the plaintiff and had on 31.12.2008 itself, issued public notices stating therein that the authority letters purportedly issued by him in favor of defendant no.1 were signed along with some blank papers when he was seriously ill and were therefore being revoked and cancelled.
14. Mr. Jain further submits that the plaintiff had itself averred that the assurance to return the money advanced by the plaintiff to the defendant no.3 was always given by the defendant no.1 and not by defendant no.2. In support of his plea, he draws my attention to para 29 and 31 of the plaint wherein the plaintiff has averred that it was the defendant no.1 who had been constantly assuring to return the money advanced by the plaintiff and had in pursuance thereof issued cheques of Rs. 1,30,00,000/- to the plaintiff. He submits that the issue regarding impleadment of legal representatives of defendant no.2 are required to be decided in accordance with the averments in the plaint as originally filed and not on the basis of the amendment application, wherein the plaintiff is now seeking to malafidely incorporate additional averments against defendant no.2.
15. He further submits that even the defendant nos. 4 to 13 have been wrongly impleaded as defendants in the suit as they are independent entities having no connection with defendant no.3, which alone was liable to pay the amount if any to the plaintiff. In any event, the issue that needs to be determined by this Court is not as to whether the defendant no.2 was a necessary and a proper party to the suit but as to whether after the demise of the said defendant, the legal representatives of the defendant no.2 should be impleaded as parties in the suit by way of an application under Order XXII Rule 4 CPC. He submits that in the plaint, the plaintiff has baldly averred that the defendant no.2 committed a fraud by siphoning off funds to defendant nos. 4 to 13 which were controlled by him. The plaintiff has however failed to demonstrate as to how this allegedly fraudulent act committed by defendant no. 2can be termed as a contractual liability so as to make his legal representatives liable.
16. He next submits that the plaintiff has filed the present suit seeking recovery of a sum of Rs. 42,70,00,000/- and has not even prayed for recovery or possession of any land and therefore it cannot be permitted to claim any interest in the land which was owned by defendant no.4 and not by defendant no. 3 or 2. By placing reliance on the decision in Bacha F. Guzdar, Bombay vs. Commissioner of Income Tax, Bombay, AIR 1955 SC 74, he submits that merely because defendant no.2 was a shareholder in defendant no.4 would not imply that he had any right in the land owned by the defendant no.4, which is an independent legal entity. He, therefore, prays that the Chamber Appeal be allowed and the plaintiffs application for impleadment be dismissed.
17. Per contra, Mr. Amit Sibal, learned senior counsel for the plaintiff, while supporting the impugned order begins by contending that not only the averments made in the plaint as originally filed sufficient to demonstrate that the defendant no.2 was under a contractual liability to refund the amount to the plaintiff, but even otherwise, the application seeking amendment of the plaint, whereby details of the role of the defendant no.2 was provided, had been filed on 08.02.2014, i.e., much before the defendant no.2 expired on 13.03.2015. He, therefore, submits that the chamber appeal and the application for impleadment ought to be examined in the light of the averments made in the amendment application, which merely try to elaborate and clarify the averments made in the plaint.
18. Without prejudice to his aforesaid submission that the averments made in the amendment application were also required to be considered by this Court, Mr. Sibal contends that the plaint in itself shows that the defendant no.2 was holding 47.8% shareholding in defendant no.3 and had, by using his position as a majority shareholder, wrongly diverted the amount paid to defendant no.3 for purchase of land to defendant nos. 4 to 13 companies, which were controlled by him. He submits that the claim of the plaintiff is for the refund under the MoU, which is clearly a statutory claim and not a claim in tort. As per the terms of the MoU entered into between the parties on 18.06.2007, the plaintiff had advanced a sum of Rs. 43,00,00,000/- to the defendant no.3, which was controlled wholly by defendant nos. 1 & 2. As per clause 12 of the said MoU, in case the SEZ notification was not issued on or before 31.12.2008, the plaintiff was entitled to seek refund of the amount paid by it and therefore the defendants were jointly and severally liable to refund of the amount advanced by the plaintiff as per the terms of the MoU.
19. By drawing my attention to para 3, 25, 26, 28, 29, 32, 36, 37 and 39, Mr. Sibal next submits that the present case is a fit case where the corporate veil is required to be lifted as the defendant nos. 1 & 2 and now the legal representatives of defendant no.2 are trying to hide behind the corporate veil to defeat the claims of the plaintiff. He submits that the amount of Rs. 43,00,00,000/- advanced by the plaintiff to defendant no.3 specifically for purchase of the land for development of SEZ in Gurugram was knowingly and deliberately diverted by defendant no.2to defendant nos. 4 to 13, which were land owning companies controlled by defendant no.2 and now by his legal heirs. The factum of the defendant nos. 4 to 13 being controlled by the defendant no.2 before his demise and now by his legal representatives is evident from the fact that the said legal representatives have 79% shareholding in defendant no.4, which, in turn, owns some of the other defendants. The defendant no.2 having diverted the amount advanced to defendant nos. 4 to 13, which are now controlled by his legal heirs, it is evident that not only was defendant no.2, a direct beneficiary of the funds so transferred but his even his legal heirs are beneficiaries of the said transfer. By placing reliance on the decision of the Apex Court in Arecelor Mittal India Private Limited vs. Satish Kumar Gupta and Ors. (2019) 2 SCC 1, he contends that the corporate veil can be lifted in cases where the entity/corporate personality is employed to defraud creditors, commit illegality, to evade an existing obligation or to circumvent a statue. In the present case, the corporate veil of the defendant no. 3 is being used to evade the existing contractual obligations under the MoU to refund back the money advanced by the plaintiff.
20. Mr. Sibal next submits that while the appellants are in the present proceedings, vehemently opposing their impleadment by contending that the right to sue against them does not survive, they have taken a wholly contradictory stand before the learned NCLT. He submits that in the pending proceedings before the learned NCLT, which had been initiated by the defendant no.2 and his wife pertaining to the functioning of defendant no.3, impleadment of all the legal heirs of defendant no.2 has been sought. He, therefore, contends that the appellants cannot therefore be permitted to plead that they neither have any connection with defendant no.3 nor are they necessary parties to the suit.
21. Having considered the submissions of the learned counsel for the parties, I may begin by noting that the appellants do not deny that they are the legal heirs of defendant no.2, who was a director in defendant no.3. They also do not deny that they have sought their impleadment as legal representatives of defendant no.2 in the pending proceedings before the NCLT, which had been initiated by the defendant no.2. The primary and infact the only ground to oppose their impleadment in the present suit is that the liability of the defendant no.2 was a liability in tort, which liability unlike the contractual liability, cannot be fastened on the legal heirs. On the other hand, it is the plaintiffs case that the liability is purely contractual as the amount of Rs.43,00,00,000/-, of which refund is being sought, was advanced to defendant no.3 under the MoU and merely because the amount was infact used by defendant no.2 for his own benefit by transferring the same to companies controlled by him, would not imply that the liability is tortious and not contractual.
22. In order to appreciate these rival pleas of the parties, it would be necessary to examine the nature of claim raised by the plaintiff against the defendant no.2 for which it would be necessary to refer to the averments made in the plaint. The question therefore would be as to whether on the basis of the averments made in the plaint, the presence of appellants would be necessary for effectual and complete adjudication of issues arising in the suit. I may therefore begin by noting the contents of Para 3, 25, 26, 28, 29, 32, 36, 37 and 39 of the plaint. The same read as under:
3. That the Defendant No. 1 is Mr. C. S. Agarwal, (also Chandra Shekhar Agarwal) Son of Shri Ram Prakash Agarwal. The Defendant No. 2 is Mr. D.K. Jain (also Devender Kumar Jain) son of Mr. Sunder Lal Jain. The Defendant No. 1 claimed that the Defendant No. 1 and Defendant No. 2 are Directors and Shareholders of M/s ROCKMAN PROJECTS LIMITED, the Defendant No. 3. The Defendants No. 4 to No. 11 are Land Owning Companies controlled by Mr. D. K Jain, Defendant No. 2. The Defendants No. 12 and No. 13 are the relatives/associates of the Defendant No. 2.
25. That suddenly on 31-12-2008, when no final notification for SEZ was obtained and the advance payments became refundable by the Defendant No. 3 to the Plaintiff, a number of public notices appeared in various newspapers. The most relevant notice as issued in newspaper Times of India dated 31-12-08 mentions:
“It is brought to the notice of the general public that my client Mr. Devender Kumar Jain (D.K.Jain) Director of M/s Rockman Projects Ltd & Rockman Projects Sez Haryana Ltd., and resident. Of A- 24A, Kailash Colony, New Delhi-48 had signed on a letter of authority and blank papers when he was hospitalized and continued illness, in favour of Mr. C.S. Agarwal, residing at 1/20, SarvapriyaVihar New Delhi-110016. My Client is presently fully capable of performing all functions. Now for several reasons, he deems it fit and proper to cancel the said letter of authority and revoke all documents made in favour of Mr. C.S. Agarwal with immediate effect. The general public warned that the said letter of authority and documents made in favour of Mr.C.S. Agarwal has no force and effect after the paper publication and any one action upon the same will be doing so entirely at his own risk and costs.
Copies of various notices as appeared in the newspaper are being filed in the proceedings.
26. That it appears that the notice so issued by the Defendant No. 2 D.K. Jain, director and major shareholder of M/s Rockman Projects Ltd. (Defendant No. 3) and others was only a subterfuge to delay the refund of payments to the Plaintiff. There is something suspicious about the activities of the Defendant No. 1 Mr. C.S. Agarwal and Defendant No. 2, Mr. D.K. Jain because as stated herein below, M/s Rajdhani Nursuries Limited (Defendant No. 4) which owns/controls a large portion of the sult lands was paid a large sum of money by the Defendant No. 3, which in turn was received from the Plaintiff and the said Company namely Rajdhani Nursuries Limited (Defendant No. 4) is a Company said to be controlled by Mr. D.K Jain (Defendant No. 2). Also, it is beyond imagination to presume that Mr. D.K Jain (Defendant No. 2) would be ignorant of the credit of about Rs. 43 Crores in the account of M/s Rockman Projects Ltd. (Defendant No. 3) a company in which Mr. D.K Jain (Defendant No. 2) is a Director and is the second largest shareholder (47.8%). The monthly flow charts of the company, Bank statements, Income tax returns etc. would have conveyed the message to Mr. D.K. Jain (Defendant No. 2) that surplus money to the tune of Rs. 43 Crores that was paid by the Plaintiff to the Defendant No. 3 was available in the Company’s books. Thus, the notices are a ruse by the Defendant No. 1 and Defendant No. 2 to create a smoke of confusion and delay the matter and to wriggle out of the MOU.
28. That in January 2009, the Plaintiff again sought refund of the advance payment given to the Defendant No. 3 as per clause 12 of the MOU and the Defendant No. 1 asked for time to refund the advance payment as he did not have the funds to repay the advance and assured the Plaintiff that he would refund the advance in installments as and when funds would become available.
29. That over the few month, after numerous telephone calls, and various SMSs sent by the Directors of the Plaintiff to the Defendant No.1 in regards to the refund to the Plaintiff, the Defendant No.1 finally agreed to return the sum of Rs. 43,00,00,000/- advance money given to the defendant no.3 with interest. Thus, on the persistent insistence of the Plaintiff, the Defendant No.1 finally issued the following cheques and as on the date of filing of the suit, the following position emerges:
Ch. No.
Amount.
Dated
Bank
Status
147816
Rs. 50,00,000
08/06/09
Oriental Bank of Commerce
Dishonored
147817
Rs. 50,00,000
08/06/09
Oriental Bank
of Commerce
Dishonored
67893
Rs. 30,00,000
18/08/09
Citibank NA
Cleared
Thus, after such adjustment of payments of cheques encashed, the Plaintiff has to still recover a sum of Rs..42,70,00,000/- (Rupees Forty Two Crores Seventy Lacs only) from the Defendants.
32. That the plaintiff has learnt that the Defendants are also actively advertising and marketing the same subject lands for which the Plaintiff has paid an enormous advance as detailed in the MoU, on the internet and though broker networks and that if they are successful, the Plaintiff would lose any hope of recovering the advance money paid to the Defendants. (Copies of advertisements in relation to the subject lands appearing in the internet are being filed in the proceedings.)
34.That the Plaintiff Company’s directors are shocked to have learnt that the Defendant No.3, instead of using the advance money received from the Plaintiff towards land consolidation as assured by Defendant No. 1 actually diverted the funds so received immediately thereafter to other sister concerns and other individuals in the following manner:
Rockman Projects Ltd to Rockman Breweries Ltd: Rs.16,50,00,000/
(b) Rockman Projects Ltd to Rajdhani Nursuries limited (a Company said to be owned and controlled by Mr. D.K Jain, the Defendant No. 2):Rs.9,35,00,000/-
(c) Rockman Projects Ltd to Rockman Advertising and Marketing (1) Limited.Rs.1,00,00,000/-
(d) Rockman Projects Ltd to Ahuja Impex:Rs.2,38,00,000/-
(e) Rockman Projects Ltd to Manoj Mangla, Mukesh Mangla, R Mangla:Rs.2,40,00,000/-
(1) Rockman Projects Ltd to Sushma Jain, Mahendra Jain: Rs. 3,00,00,000/-
Total Rs. 34,63,00,000/-
Thus a majority of the funds from the advance payment of Rs. 43,00,00,000/- were diverted to sister concerns and other parties even though the Defendant No. 1 assured the Plaintiff that the advance money was to be used to purchase the balance land and to conclude the deal with the Plaintiff Company.
36. That it is apparent that the Defendant No. 1 and Defendant No. 2 are deliberately trying to create confusion by both Issuing conflicting public notices that have appeared in the newspapers. It is obvious that both set of notices cannot be true. The Defendant No. 1 and Defendant No. 2 are in cahoots with each other and have a common aim to defraud the Plaintiffs of hard earned money. The Defendant No. 1 and Defendant No. 2 are common in their objective to continue enjoyment of the money so given by the Plaintiff so much as so the money of the Plaintiff is being used by the Defendant No. 1 and Defendant No. 2 for personal use and transferred to their own closely held companies. Thus, the Defendants are jointly and severally liable to make good the refund of advance payment to the Plaintiff with interest.
37. That the Plaintiff Company aggrieved by the actions of the defendants, submitted a formal complaint to the Economic Offences Wing of the Delhi police who after a thorough investigation, have registered an FIR against Defendant No. 1. Mr. C.S Agarwal and Defendant No. 2, Mr. D.K Jain for the above stated circumstances of cheating, fraud and misappropriation of funds after entering into a criminal conspiracy to cheat the Plaintiff. A typed copy of the FIR no. 264/2009 U/s 420/406/120B IPC so registered is being filed in the proceedings.
39. That the cause of action to file the present suit first arose on 31.12.2008 when notices filed by Mr. DK. Jain the Defendant No.2 appeared in the newspaper mentioning the non- authorization of the Defendant No.1, Mr. C.S Agarwal to deal, negotiate or sign any agreements or MOU with respect to the subject lands. The cause of action then arose when the cheque No. 147816 for Rs.50,00,000/- (Rupees Fifty Lacs only) drawn on Oriental Bank of Commerce dated 8/6/2009 was dishonored numerous times and cause of action arose when the cheque was dishonored latest on 03-12-2009. Similarly the cheque No. 147817 for Rs.50,00,000/- (Rupees Fifty Lacs Only) dated 8/6/2009 drawn on Oriental Bank of Commerce was dishonored numerous times and latest on 03-12-2009 and thus cause of action arose in favour of the Plaintiff to file the suit. The suit is within the prescribed period of limitation.
23. From the aforesaid averments made in the plaint, what emerges is that the plaintiff has specifically urged that the defendant no.2 was liable to refund the amount advanced under the MoU as he was, through companies controlled by him, the beneficiary of the amounts advanced to defendant no.3. It is the plaintiffs specific case that the amounts which were advanced to defendant no.3 were, in collusion with defendant no.1 diverted by defendant no.2 to companies controlled by him. It is claimed that the defendant no.2, having transferred this amount to companies controlled by him, the specific claim against him was for the refund of amount misappropriated by him through defendant nos. 4 to 13. In the light of these specific averments, I am unable to appreciate as to how it can be said that the claim of the plaintiff against the defendant no.2 was such as would get extinguished with his death. The claim is clearly for a refund of a fixed amount paid under the MoU. In my view, it is only claims which are purely personal in nature such as for damages on account of defamation, assault etc. wherein the right to sue would no longer survive after the death of the person concerned. In this regard, reference may be made to para 4 of the decision of the Apex Court in Puran Singh vs. State of Punjab, 1996 Vol 2 SCC 205 which was also referred to by the Division Bench in Nirmal Jain (supra), relied upon by the appellants. The same reads as under:
4. A personal action dies with the death of the person on the maxim action personalismoritur cum persona. But this operates only in a limited class of actionex delicto, such as action for damages for defamation, assault or other personal injuries not causing the death of the party, and in other actions where after the death of the party the granting of the relief would be nugatory (Girja Nandini Devi v. BijendraNarain Choudhury). But there are other cases where the right to sue survives in spite of the death of the person against whom the proceeding had been initiated and such right continues to exist against the legal representative of the deceased who was a party to the proceeding. Order 22 of the Code deals with this aspect of the matter. Rule 1 Order 22 says that the death of a plaintiff or defendant shall not cause the suit to abate if the right to sue survives. That is why whenever a party to a suit dies, the first question which is to be decided is as to whether the right to sue survives or not. If the right is held to be a personal right which is extinguished with the death of the person concerned and does not devolve on the legal representatives or successors, then it is an end of the suit. Such suit, therefore, cannot be continued. But if the right to sue survives against the legal representative of the original defendant, then procedures have been prescribed in Order 22 to bring the legal representative on record within the time prescribed. In view of Rule 4 Order 22 where one of two or more defendants dies and the right to sue does not survive against the surviving defendant or defendants alone, or a sole defendant dies and the right to sue survives, the Court, on an application being made in that behalf, shall cause the legal representatives of the deceased defendant to be made a party and shall proceed with the suit. If within the time prescribed by Article 120 of the Limitation Act, 1963 no application is made under sub-rule (1) of Rule 4, the suit shall abate as against the deceased defendant. This rule is based not only on the sound principle that a suit cannot proceed against a dead person, but also on the principle of natural justice that if the original defendant is dead, then no decree can be passed against him so as to bind his legal representative without affording an opportunity to them to contest the claim of the plaintiff. Rule 9 of Order 22 of the Code prescribes the procedure for setting aside abatement.
24. In the aforesaid decision, the Apex Court has explained that it is only in a limited class of cases that the right to sue would stand extinguished after the death of a defendant. Taking into account the specific averments made in the plaint which clearly show that the claim in the suit was for a specific amount, which was advanced to defendant no.3 but is said to have been utilized by defendant no.2 and that too by transferring the same to companies controlled by him, it cannot be said that the claim is in any manner tortious in nature, as is sought to be contended by the appellants. In the present case, the claim of the plaintiff is not in the nature of damages for defamation, assault or personal injuries but is for the refund of a specific amount advanced under the MoU. The learned senior counsel for the plaintiff is therefore correct in urging that the claim in question is purely contractual and not tortious.
25. What also needs to be noted is that in the present case, the appellants do not deny that they are in control of defendant nos. 4 to 13, the companies to which the amount advanced under the MoU is stated to have been wrongly transferred. The appellants are therefore evidently beneficiaries of the amount, which the defendant no.2 is stated to have wrongly transferred to defendant nos. 4 to 13. In these circumstances, I am of the considered the view that the presence of the appellants, who are therefore apparently the beneficiaries of the amount advanced under the MoU, would be necessary for effective adjudication of the issues raised in the suit.
26. Learned counsel for the appellants has also vehemently urged that a company is a separate legal entity and a director is only one of the officers of the said legal entity and therefore his legal heirs cannot be held liable for official acts done by him on behalf of the company. In my view, even though the appellants are correct in urging that generally a director cannot be held liable for the acts of a company, which is a separate legal entity, this proposition would not be applicable to the facts of the present case. As noted hereinabove, specific averments have been made in the plaint that the defendant no.2 has diverted the amount, of which refund is being sought and therefore it is not simpliciter case of the defendant no.2, having discharged his duties on behalf of a company. The claim against defendant no.2 is based on his act of having wrongly diverted the amount to companies controlled by him. For this reason, the decisions in Tristar (supra), J.K. Investment Trust Ltd. (supra) and Montage Advertising P. Ltd. (supra), relied upon by the appellants will not be applicable to the facts of the present case.
27. I have also considered the decision in Bhai Analjit Singh (supra),relied upon by the appellants but find that the same is not applicable to facts of the present case. In the said case, the Division Bench found that neither was the defendant no.2 therein a beneficiary of the amounts advanced to the company nor was it the case of the plaintiff that the estate of the defendant no.2 had benefitted from the alleged misappropriation of fund. The Division Bench therefore held that the liability of the deceased defendant no.2 could, at best, be said to be a tortious liability. In this regard, reference may be made to para 10 of the said decision which reads as under:
10.We do not find these grounds to be relevant for impleadment of the legal representatives of the second defendant after his death. Even when joint written statement was filed by all the defendants, that would not mean that the plaintiff is not bound by its own pleadings and averments made in the
plaint, as extracted above, as per which the liability is sought to be fastened upon the defendant No.2 was under the tort. The letter written by the second defendant indicative of his role and involvement again shows, if at all, misrepresentation on his part which would again be in the realm of tort. The defendant No.2 otherwise was not the beneficiary as money was given to the defendants No.1 and 3. It is not the case of the plaintiff that estate of the defendant No.2 has benefitted and therefore, this benefit has percolated to his legal representatives after his demise. Therefore, the alleged liability of the defendant No.2 would only be tortuous and not contractual. In these circumstances, when estate of defendant No.2 has not benefitted, the action against defendant No.2 would not survive after his death and his LRs cannot be brought on record. In M. Veerappa v. Evelyn Sequeira and Ors., AIR 1988 SC 506 the Supreme Court, after extracting Section 306 of the Indian Succession Act, 1925, held that:-
“…..the words “personal injuries” do not mean “injuries to the body alone but all injuries to a person other than those which cause death and that the relevant words must be read ejusdem generis with the words ‘defamation and assault’ and not with the word ‘assault’ alone.”
28. However, unlike the position in Bhai Analjit Singh (supra), in the present case, the defendant no.2 and now his legal representatives are direct beneficiaries of the amount advanced by the plaintiff. During arguments, it has not been denied by the appellants that they have a controlling share in defendant nos. 4 to 13, companies to which, it is the plaintiffs case the amount has been diverted. The legal representatives of the deceased defendant no.2, who after his demise, are holding about 79% shares in defendant nos. 4 to 13, having directly benefitted from the amount advanced by the plaintiff, cannot now be permitted to urge that they cannot be held liable for this amount, which was advanced to defendant no.3 but was allegedly siphoned off by defendant no.2. It is also noteworthy that Mr. Shivir Jain, defendant no.2 (B), who is vehemently opposing the impleadment, is a signatory to the sale deeds executed by defendant no. 4 in favor of Mr. Vipul Jindal, proposed defendant no. 15. This alienation of land owned by defendant no.4, it has been urged by the plaintiff was done with an aim to somehow alienate the properties mentioned to in the plaint so as to frustrate the claims of the plaintiff. The decision in Bhai Analjit Singh (supra) therefore does not forward the case of the appellant in any manner.
29. I have also considered the decision in Nirmal Jain (supra)and find that even this decision would also not be applicable to the facts of the present case. In Nirmal Jain (supra), not only had the defendant, whose legal heirs were sought to be impleaded, already expired before the institution of the suit but even otherwise, the averments against him in the plaint were found to be vague. It is, in these circumstances, that the Division Bench found that it would be unfair and unjust to compel the legal representatives to defend a suit which did not disclose any cause of action against them. In this regard, reference may be made to para 23 and 29 of the said decision, which read as under:
23. Summarised in a nutshell, it is alleged in the plaint that the Defendants Nos. 2 to 5 are/were persons responsible for day to day affairs of the Defendant No. 1 and liable to meet the liabilities of the Defendant No. 1 as they had personally guaranteed repayment of debt to the Plaintiff Company through the MOU. However, a careful reading of the plaint reveals that it is the case of the plaintiff that the Defendant No. 2 along with the Defendant No. 1 acknowledged certain liabilities and guaranteed repayment of debt. The allegations against the other defendants and in particular, the Defendant No. 4 are vague, sweeping allegations, devoid of any particulars.
29. The impugned order under appeal has been passed without at all considering whether the plaintiff respondent No. 1 has any cause of action against the appellant, and without considering whether the appellants were either necessary or proper party to the suit whose presence was necessary for effective adjudication of issues raised in the suit.
30. In the present case, it may be noted at the cost of repetition that there are specific allegations against defendant no.2 of having misappropriated the amounts advanced under the MoU, which amounts it has been averred in the plaint were transferred to defendant nos. 4 to 13. The said companies, it is the plaintiffs case, were controlled by defendant no.2 and are now being controlled by the appellants, who have also sought their impleadment in the proceedings pending before the learned NCLT. Unlike in the case of Nirmal Jain (supra), where the allegations in the plaint against the deceased defendant no.2 were found to be vague, the plaintiff has levelled specific allegations against defendant no.2, the veracity whereof, can be tested only in trial. I, therefore, have no hesitation in holding that the ratio of the decision in Nirmal Jain (supra) is wholly inapplicable to the facts of the present case.
31. At this stage, I may also note that the learned senior counsel for the plaintiff has, by drawing my attention to the proposed amended plaint vehemently urged that it is a fit case where the corporate veil deserves to be lifted. He has, by placing reliance on the decision in Arcelor Mittal (supra), urged that the appellants, who are now controlling defendant nos. 4 to 13 are direct beneficiaries of the amount and therefore the corporate veil should be lifted. However, taking into account that this prayer for lifting of corporate veil has been raised for the first time in the amendment application, which is yet to be allowed, I am not examining this plea of the plaintiff at this stage. In any event, once I have come to the conclusion that on the basis of the averments made in the plaint itself, it is evident that the right to sue survives against the legal representatives of defendant no.2, nothing much would turn on the amendment application.
32. For the aforesaid reasons, I find no merit in the chamber appeal OA 46/2019, which is accordingly dismissed. For the same reasons, the impleadment application being I.A. 7673/2015 is allowed and as directed by the learned Registrar vide his order dated 04.02.2019, the four legal representatives as set out in para 4 of the application are impleaded as defendants 2(A) to (D). Amended memo filed along with the application is taken on record.
CS (OS) 76/2010
33. List for consideration of all pending applications on 06.11.2023.
(REKHA PALLI)
JUDGE
OCTOBER 11, 2023
al
CS(OS)76/2010 Page 1 of 27