Full Judgment Text
*IN THE HIGH COURT OF DELHI AT NEW DELHI
th
% Date of decision: 19 March, 2013
+ CS(OS) 47/2011
SATYENDRA JAIN ..... Plaintiff
Through: Mr. Sanjeev Puri, Sr. Adv. with Mr.
Sanjay Sarin, Mr. Tarun Rana & Ms.
Gagan Deep Kaur, Advs.
versus
M/S OMWAY BUILDESTATE PVT. LTD. & ORS.... Defendants
Through: Mr. Amit Chadha, Sr. Adv. with Mr.
Kunal Sinha, Adv.
AND
+ CS(OS) 48/2011
RAVI SHARMA ..... Plaintiff
Through: Mr. Sanjeev Puri, Sr. Adv. with Mr.
Sanjay Sarin, Mr. Tarun Rana & Ms.
Gagan Deep Kaur, Advs.
versus
M/S OMWAY BUILDESTATE PVT. LTD. & ORS.... Defendants
Through: Mr. Amit Chadha, Sr. Adv. with Mr.
Kunal Sinha, Adv.
CORAM :-
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
RAJIV SAHAI ENDLAW, J
IA No.17660/2011 [u/O 37 R-3(5)] in CS(OS) No.47/2011 and IA
No.17661/2011 [u/O 37 R-3(5)] in CS(OS) No.48/2011 (both for grant of
leave to defend)
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 1 of 27
1. Applications for leave to defend the two suits under Order 37 of the
Code of Civil Procedure, 1908 for recovery of Rs.5,75,17,240/- and
Rs.9,94,14,041/- with interest and costs are for adjudication. The two suits,
though by different plaintiffs, are against the same defendants No.1 to 3 save
that there is an additional defendant No.4 in CS(OS) No.48/2011. The suits
are being listed together and the same set of counsels have made the same
arguments in both the suits.
2. The suits were filed pleading:
(i) That the defendant No.2 in both the suits viz. Mr. Janak Goyal,
being the Director of the defendant No.1 Company, had
approached the plaintiff in each of the suits in January, 2010 for
business loan of Rs.4,35,00,000/- and Rs.7,50,00,000/-
respectively for the purpose of promoting and developing the
business of the defendant No.1 Company.
(ii) That the defendant No.3 Smt. Neelam Goyal is also a Director
of the defendant No.1 Company.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 2 of 27
(iii) That the defendants required the subject loan for the period with
effect from 20.01.2010 to 31.05.2010 extendable upto
30.09.2010 with interest thereon at 36% per annum.
(iv) That the plaintiff in CS(OS) No.47/2011 agreed to lend the said
loan to the defendant No.1 Company on the guarantee of the
defendant No.2 and the plaintiff in CS(OS) No.48/2011 agreed
to lend the said loan to the defendant No.1 Company on the
guarantee of the defendants No.2 and 4.
(v) That the defendant No.1 executed the Loan Agreements dated
20.01.2010 with each of the plaintiffs and the defendant No.2
stood as guarantor with respect to the loan subject matter of
CS(OS) No.47/2011 and the defendants No.2 and 4 stood as
guarantors with respect to the loan subject matter of CS(OS)
No.48/2011 and in pursuance to the said Agreements, loan was
advanced by each of the plaintiffs and the defendants agreed to
pay interest at the rate of 36% per annum on the said loan.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 3 of 27
(vi) That the loan amount was disbursed vide cheques, particulars
whereof are given in the plaint in each of the two suits and
which were duly encashed by the defendant No.1 Company.
(vii) That the loan was secured by, mortgage by delivery of title
deeds of the properties described in the plaint in each suit, post
dated cheques and guarantee of defendant No.2 in CS(OS)
No.47/2011 and guarantee of defendants No.2 and 4 in CS(OS)
No.48/2011.
(viii) That a Memorandum of Mortgage by deposit of title deeds was
also executed.
(ix) That the defendants defaulted in repayment of the loan even
within the extended period of 30.09.2010.
(x) That the post dated cheques issued in favour of the plaintiffs in
each of the suits in repayment of the loan amount were also
returned dishonoured with the endorsement of the bank of the
defendant No.1 Company of “owing to insufficiency of funds”
in the account of the defendant No.1 Company.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 4 of 27
(xi) That notices demanding the amount were got issued by the
plaintiffs to the defendants and subsequently complaints of
offences under Section 138 of the Negotiable Instruments Act,
1881 also instituted.
These suits for recovery of the principal amount of the loan together
with interest thereon at 36% per annum till the institution of the suits and the
amount already deducted by the defendant No.1 Company towards tax at
source from the interest amount, were filed under Order 37 of the CPC.
3. In response to the summons for appearance, appearance was filed on
behalf of the defendants, summons for judgment issued and the defendant
No.1 Company has filed IA No.17660/2011 and the defendants No.2 and 3
have filed IA No.17659/2011 in CS(OS) No.47/2011 for leave to defend and
defendant No.1 Company has filed IA No.17661/2011 and the defendants
No.2 & 3 have filed IA No.17662/2011 and the defendant No.4 has filed IA
No.17763/2011 in CS(OS) No.48/2011 for leave to defend. However, as
aforesaid, the same senior counsel on behalf of both the plaintiffs and the
senior counsel on behalf of the defendants in both the suits have raised
common arguments. Need is thus not felt for referring separately to each of
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 5 of 27
the applications for leave to defend and reference hereinafter shall be made
to the leave to defend of the defendant No.1 Company only.
4. The grounds urged in the affidavits accompanying the applications for
leave to defend are as under:
i) That the suit against the defendant No.3 on the ground of her
being the Director of the defendant No.1 Company and against
the defendants No.2 and 4 as guarantors, is bad for misjoinder
of parties and cannot be tried as a summary suit.
ii) That the original documents on which the suit is based have not
been filed and the suit is thus not maintainable under Order 37
as the plaintiffs will have to lead evidence requiring trial.
iii) That the defendants are still willing to honour their
commitments of allotting the “said plot of land” to the plaintiffs
after the clearance of already pending Court cases.
iv) That the claim for interest is beyond the scope of summary
procedure.
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v) That the alleged mortgage deed is neither registered nor is it
properly stamped and no reliance can be placed thereon.
vi) That the defendant No.1 Company had started a project at
Alwar in Rajasthan under the name and style of Park City
Alwar which has got delayed owing to certain disputes having
arisen with respect thereto.
vii) That the plaintiff in CS(OS) No.47/2011 and M/s Astute Real
Estate Pvt. Ltd. of which the plaintiff in CS(OS) No.48/2011
and his wife were Directors, had approached the defendants in
the year 2008 for purchase of 7556 and 16933 sq. fts. super area
respectively of the ground floor of the said project and had paid
Rs.50,00,000/- and Rs.1,50,00,000/- respectively to the
defendant No.1 and in respect of the same mortgage deed as
demanded by the plaintiffs were signed and post dated cheques
given as security.
viii) An MOU dated 01.08.2008 and 18.10.2008 respectively was
entered into for the said purpose and further amounts paid
thereunder to the defendant.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 7 of 27
ix) Further amounts were paid for the said project.
x) That the rate at which commercial space was so agreed to be
sold were concessional rates and the Agreements signed were
not normal booking agreements made by the defendants in the
due course of their business but had been drafted by the
plaintiff in each case.
xi) That the plaintiff in CS(OS) No.47/2011 is a Chartered
Accountant and the plaintiff in CS(OS) No.48/2011 had
approached the defendants through the plaintiff in CS(OS)
No.47/2011 only.
xii) Further Agreement dated 10.10.2008 was also entered into with
plaintiff in CS(OS) No.47/2011 for 3307 sq. fts. developed
space and further amounts paid thereunder.
xiii) However owing to disputes aforesaid, the development of the
project was held up.
xiv) That the total money received by the defendant No.1 Company
from the plaintiff No.1 in CS(OS) No.47/2011 is
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Rs.1,00,00,000/- only and from M/s Astute Real Estate Pvt.
Ltd. is Rs.1,75,00,000/- only.
xv) That the defendants are ready and willing to handover the
allotted space to the plaintiffs in each of the cases as soon as the
stay orders owing to which the development of the project is
held up are vacated.
xvi) That each of the plaintiffs forced the defendant to sign the
Agreements dated 20.01.2010.
xvii) That the Loan Agreements dated 20.01.2010 are a farce and do
not record the understanding or the agreements between the
parties inasmuch as the amounts of Rs.4,35,00,000/- and
Rs.7,50,00,000/- were never paid by the plaintiffs to the
defendant by way of loan.
xviii) That the account with the Bank of Baroda, Lajpat Nagar
Branch, New Delhi in which the loan amount was given was
not the normal account of the defendant No.1 Company but had
been opened a day or two prior to the Agreements dated
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20.01.2010 and the plaintiff only had introduced the defendant
No.1 Company for the purposes of opening the account as the
plaintiff in each case had a long standing account with the said
Branch.
xix) That the modus operandi was that the cheques would be
deposited by the plaintiffs on one day and would thereafter be
taken out by the plaintiffs themselves on the basis of signed
cheques taken by them.
xx) That the fact of the matter is that the two plaintiffs had
advanced Rs.1,00,00,000/- and Rs.1,75,00,000/- respectively
only to the defendant and in the case of CS(OS) No.48/2011, in
respect of M/s Astute Real Estate Pvt. Ltd., money was sought
to be shown as given by the plaintiff therein namely Mr. Ravi
Sharma.
xxi) That even the Loan Agreements dated 20.01.2010 provide that
if the project of the defendant No.1 Company is approved, the
area which is given as security would be given to the plaintiff in
each case at Rs.2,250/- per sq. ft.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 10 of 27
xxii) That the plaintiffs have deliberately and mala fidely concealed
the Agreements of 2008.
xxiii) That the suit is barred under the provisions of the Money
Lending Act, Usurious Interest Act and also on account of the
fact that the documents are improperly stamped and
unregistered.
It is thus the case of the defendants that triable issues arise.
5. The senior counsel for the defendants has confined his
arguments to the transaction of the year 2010 being a “money rotation
transaction”. On being enquired as to what is a “money rotation
transaction”, the senior counsel during the hearing on 31.01.2013 informed
that such transactions are common and are done to show huge volume of
business with money going in and coming out of the account, to enable the
account holder to obtain a loan from the Bank. On being asked as to
whether that was the criteria of any of the banks for granting loan, the senior
counsel promised to show loan documents of banks on the next date of
hearing but did not show anything in the adjourned hearing on 06.02.2013. I
find the said arguments unpalatable. The creditworthiness cannot possibly
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be judged on the basis of large amounts of money being credited and debited
and logic tells, has to be judged either on the profitability and soundness of
the business and / or on the assets of a prospective debtor from which the
loans if any remaining outstanding can be realized.
6. The senior counsel for the defendants then drew attention to the
factum of the plaintiffs only having introduced the defendant No.1 Company
for the purpose of opening the account with the bank in which the loan
amounts stated to be given by each of the plaintiffs to the defendant No.1
were credited. He has with the help of a chart handed over during the
hearing shown that three cheques of the total value of Rs.4,35,00,000/- were
th th
on 19 & 20 January, 2010 transferred from the account of the plaintiff in
CS(OS) No.47/2011 into the account of the defendant No.1 and four cheques
of the total value of Rs.7,50,00,000/- were transferred from the account of
the plaintiff in CS(OS) No.48/2011 into the bank account of the defendant
No.1. It is further shown that a total sum of Rs.5,43,15,669/- was transferred
from the same account of the defendant No.1 to the account of plaintiff in
th th
CS(OS) No.47/2011 on 18 & 20 January, 2010 and a total sum of
th th
Rs.6,30,75,211/- was transferred on 19 & 20 January, 2010 from the
account of defendant No.1 to the account of M/s Astute Real Estate Pvt. Ltd.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 12 of 27
7. The senior counsel for the defendants has next invited attention to a
report submitted by Serious Fraud Investigation Office (SFIO) of the
Ministry of Corporate Affairs, Government of India in Company Petition
No.277/2011 filed by the plaintiff in CS(OS) No.48/2011 for winding up of
the defendant No.1 Company. It is argued that the argument of the
defendants of the transaction between the parties being a “money rotation
transaction” is supported from the said report also. The senior counsel has
further argued that the cheques of the plaintiff in each case, by which the
loan in each case is stated to be disbursed to the defendant No.1 Company,
are of prior to the date of the Agreements and there is no disbursement of
loan after the Loan Agreements dated 20.01.2010 and the Agreements are
thus without consideration and cannot be relied upon. Reference in this
regard is made to the language of the Agreements which is of the loan being
disbursed in pursuance thereto and not of having already been disbursed.
The senior counsel has thus argued that the defence of the defendants is a
triable one and cannot be called a moonshine and the defendants are thus
entitled to leave to defend.
8. The senior counsel for the plaintiffs has argued that the plaintiffs do
not deny the transactions of the year 2008 of the plaintiff in CS(OS)
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No.47/2010 and of M/s Astute Real Estate Pvt. Ltd. of which the plaintiff in
CS(OS) No.48/2011 is a Director, with the defendant No.1 Company. He
has invited attention to the documents of the said transaction filed by the
defendants themselves and has shown that the monies paid by the plaintiffs
in CS(OS) No.47/2011 and by M/s Astute Real Estate Pvt. Ltd. of which the
plaintiff in CS(OS) No.48/2011 is a Director, to the defendant No.1
Company in the year 2008 though against booking of space were refundable
with interest mentioned therein as incidental charges, after a particular date
and even the defendant No.1 Company had an option under the said Booking
Agreements of the year 2008 to so refund the monies with incidental charges
and was not obliged to give space only in pursuance to the said Agreements.
The senior counsel for the plaintiffs further states that the accounts between
the plaintiff in CS(OS) No.47/2011 and M/s Astute Real Estate Pvt. Ltd. of
which plaintiff in CS(OS) No.48/2011 is a Director, and the defendant No.1
relating to the said flat Booking Agreements of the year 2008 stand settled
and neither plaintiff in CS(OS) No.47/2011 nor M/s Astute Real Estate Pvt.
Ltd. is now claiming any rights under the said Loan Agreements and the
plaintiffs are claiming rights only under the Loan Agreements of 20.01.2010.
On enquiry, whether any documents of closure of the 2008 transaction were
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executed, it is informed that no such documents were executed. He has
further shown that though the defendant No.1 while issuing post dated
cheques for refund of the loan amount under the Loan Agreements dated
20.01.2010 with interest, deducted tax at source of Rs.10,85,474/- and
Rs.19,45,479/- respectively and endorsement whereof is to be found on the
reverse of the cheques but no TDS Certificates also have been issued to the
defendants. He has further taken me through the SFIO report to contend
that the same supports the version of the plaintiffs rather than that of the
defendants. Attention is also invited to the statement of the defendants
recorded on 02.05.2011 in the Court of Sh. Vikrant Vaid, MM (NI Act)-
02/South, where it was stated that the cheque was given as security to be
presented „upon failure of the defendants to abide by the terms and
conditions of the Agreement‟. It is argued that the Loan Agreements dated
20.01.2010 which in the application for leave to defend is being called a
farce, is not denied in the said proceedings. The senior counsel for the
plaintiffs relies on Ms. V.K. Enterprises Vs. M/s Shiva Steels AIR 2010 SC
2885 to contend that where the issuance of the cheque on which the suit
under Order 37 of the CPC is based is not disputed, leave to defend has to be
refused. It is further argued that the defendants had been injuncted vide
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order dated 22.01.2007 in OMP No.36/2007 filed by some other person,
from dealing with the land which in pursuance to the Loan Agreement dated
20.01.2010 was mortgaged with the plaintiffs. It is stated that owing to the
earlier injunction order, the said mortgage is useless. Copy of the application
dated 13.08.2010 filed by the defendant No.1 in S.B. Civil Writ Petition
No.195/2009 titled M/s Omway Buildestate Pvt. Ltd. Vs. Divisional
Commissioner, Jaipur is also handed over during the hearing to show that
the defendant No.1, therein, has admitted liability to pay interest to the
plaintiffs.
9. The senior counsel for the defendants in rejoinder has argued that the
plaintiffs in the plaint did not disclose the earlier Agreements of the year
2008 with the defendant No.1 and portrayed the loan transaction of the year
2010 to be a standalone transaction and cannot now be permitted to explain
away on the basis of said earlier transaction. It is argued that had the
plaintiffs made a case, as is now being made, of the transaction of the year
2008 being squared off and no claim surviving therein, the defendants would
have had an opportunity to give their reply with respect thereto. On enquiry
as to whether according to the defendants, the transaction of the year 2008
was still alive, the senior counsel for the defendants answered in the
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affirmative. The senior counsel for the defendants has further argued that no
money in the year 2010 at the time of the alleged loan came from the
pockets of the plaintiffs to the pocket of the defendants. It is further argued
that evidence is to be directed to be led to substantiate the plea of the
transaction of the year 2010 being a sham and the defendants at this stage
are only required to show that their defence is not a moonshine. It is stated
that the defendants in their documents have filed a copy of the ledger of M/s
Astute Real Estate Pvt. Ltd. in the books of accounts of the defendants,
where monies are still shown as due from the defendant No.1 Company to
M/s Astute Real Estate Pvt. Ltd. It is further explained that the earlier
injunction of 22.01.2007 in OMP No.36/2007 was vacated by the Arbitrator
in the year 2010. It is further argued that the land of which mortgage has
been given is outside the developed land and is still good security. It is
further contended that the title deeds of the properties of the defendants in
fact were deposited with the plaintiffs pursuant to the Booking Agreements
of 2008 and not in pursuance of the Agreement of 2010. The senior counsel
has argued that it is a question of evidence as to what is the exact nature of
relationship between the parties and when two views are possible, the
principle is that leave to defend should be granted. As far as the reliance by
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the plaintiffs on the report of SFIO is concerned, the senior counsel for the
defendants has argued that the defendants have not had the opportunity to
cross examine the persons examined by the SFIO and which opportunity the
defendants would have upon leave being granted and during the trial of the
present suit.
10. I have considered the rival submissions. What is abundantly borne
out is that, the execution of the Loan Agreements of 20.01.2010 and
issuance of the cheques in repayment of loan with interest, on which the suit
is based, is no disputed.
11. The Loan Agreements of the year 2010 are unequivocal and record, i)
loan having been advanced by each of the plaintiffs to the defendant No.1
and the terms of the said loan; ii) guarantees furnished by the other
defendants for repayment thereof; iii) equitable mortgage having been
created to secure the said loans; iv) post dated cheques for repayment of the
loan amount with interest due having been issued; and, v) tax having been
deducted thereon.
12. The argument of the senior counsel for the defendants, of the
transactions of the year 2010 in the bank account of the defendant No.1
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Company being a “money rotation transaction”, besides being illogical and
having remained unsubstantiated during the arguments, does not have any
foundation in the application for leave to defend. The said argument appears
to have been taken by the senior counsel from the report of the SFIO.
However the SFIO has not reported that the transactions were only intended
for transfer of monies from one account to another.
13. The position which emerges from the entire narration aforesaid and
the documents on record, according to me is clear as day light, though the
parties to the suit for their own reasons may have avoided to so spell out the
same. The plaintiffs (the plaintiff in CS(OS) No.48/2011 through his
company M/s Astute Real Estate Pvt. Ltd.) had in the year 2008 advanced
certain monies to the defendant No.1 and which in 2008 were given the
colour of advance sale consideration / booking amount for the built up space
being developed by the defendant No.1. However, the defendants
themselves in their leave to defend application admit that the 2008
transaction between the parties was not the same as of the defendant No.1
with it is other flat buyers. The defendant No.1 thereunder, agreed to
provide collateral security in the form of title deeds to secure the advance
consideration / booking money paid by the plaintiffs to the defendant No.1.
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Not only so, the defendant No.1 also agreed to buy back the said space from
the plaintiffs at a consideration far more than the consideration at which it
had agreed to sell the same space to the plaintiffs. Though the additional
amount which was to become payable to the plaintiffs on repurchase of the
said space by the defendant No.1 was described as „incidental charges‟ but
experience of life shows that the same was nothing but an interest for the
period of time after which the buyback / repurchase was agreed to be
effected. This is also evident from the fact that the defendant No.1 also
issued post dated cheques for the buyback / repurchase price.
14. It is admitted by the defendants themselves that the project for which
finances had, in the aforesaid manner, been provided by the plaintiffs to the
defendant No.1, was held up. The defendant No.1, under the Agreements of
the year 2008 and the post dated cheques issued at that time, was liable to
refund not only the principal amount of Rs.1,00,00,000/- and
Rs.1,75,00,000/- admittedly received from the plaintiffs, but also the
incidental charges and / or the repurchase price which the defendant No.1
had agreed to pay to the plaintiffs and which the defendant No.1 had
admittedly been unable to pay to the plaintiffs owing to the project being
held up. The execution of the Agreements of the year 2010 show that the
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parties then decided to give the transaction of financing, earlier in the year
2008 given the colour of a Flat Booking Agreement, the true colour of Loan
Agreement. However to show such a loan transaction, money was required
to be shown to have flown from the plaintiffs to the defendant No.1 and for
which purposes the account aforesaid of the defendant No.1 was opened in
the bank and monies transacted. Further however, since the aforesaid
monies were already with the defendant No.1 under the Flat Booking
Agreements of the year 2008 and were not required to be again given to the
defendant No.1, the monies in the said account shown to have been
advanced by the plaintiffs to the defendant No.1 were directed back into the
accounts of the plaintiffs and M/s /s Astute Real Estate Pvt. Ltd. To my
mind, the defendants now cannot be permitted to rake up the transactions of
the year 2008, to ward off their liabilities under the transaction of the year
2010.
15. The parties are dealing in large volume of financing. They have
reduced their transaction into writing. Should this Court, inspite of such
writings, and inspite of seeing through the real transaction as aforesaid
which is clearly visible through the documents, still insist on trial. In my
st
view, no. I have recently in judgment dated 1 February, 2013 in CS(OS)
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th
No.1480/2009 (corrected and released on 4 March, 2013) titled Chemical
Systems Technologies (India) Pvt. Ltd. Vs. Simbhaoli Sugar Mills Ltd.
held that unless the Courts construe pleadings in commercial disputes, taking
note of the modern prevalent business practices, they will be failing in their
duty towards trade and commerce, flourishing whereof depends upon
expeditious disposal of disputes. The pleadings and transactions of
commercial persons cannot be viewed on the same principles as applicable
to transactions between family members or laypersons. A commercial /
business person who has signed documents and issued cheques in pursuance
thereto cannot be lightly allowed to shake off the effect of such documents.
We are here not dealing with villagers but with astute street-smart, hard-
nosed, shrewd businessmen. The Courts cannot be blind to the prevalent
business practices and environment and cannot afford to continue to decide
modern day transactions on ancient principles / precedents. If the Courts
continue to do so, it will be a great disservice to the administration of the
justice delivery system which will then be forced to look at unconstitutional
dispute resolution mechanisms. The Courts have to necessarily keep pace
with the innovations of businesses and business practices and the Court will
always be slow to find that the written agreement does not represent the
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actual agreement between the parties on the matters which it addresses. This
is necessary, both to promote commercial certainty and to prevent parties
from achieving what is effectively rectification without proving a common
intention. Judge Learned Hand as far back as in James Baird Co. v. Gimbel
Bros., Inc. 64 F.2d 344, 346 said that in commercial transactions it does not
in the end promote justice to seek strained interpretations in aid of those who
do not protect themselves. The same sentiment was echoed in Allied
Communications Corporation Vs. Continental Cellular Corporation
MANU/FEFC/0637/1987 where it was observed that when the transaction is
commercial, the parties sophisticated, and the contract itself detailed, it is
wise for the Courts to rely on express language than to imply a promise on
their own.
16. Though the law permits a plea of a transaction being a sham one but
for such a plea to be taken, the circumstances in which the person (pleading
the transaction to be a sham) was made to succumb thereto and the reasons
for creating a camouflage have to be pleaded. There is no pleading
whatsoever to this effect in the leave to defend applications of the
defendants. Upon the same being put to the senior counsel for the
defendants, he stated that the reasons would be given in the written
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statement. This cannot be an argument for seeking leave to defend under
Order 37. It is incumbent upon the defendant applying for leave to defend to
make out a plausible case and the defendant cannot be heard to state that the
case will be made after the leave to defend is granted.
17. The defendants having signed the loan Agreements and having issued
post dated cheques, are bound thereby and if commercial men, especially
those dealing in large sums of monies, are not held to be bound by their
writings, signatures and by the negotiable instruments admittedly executed
by them, the wheels of business which turn on monies, loans and finances
will stop rotating.
18. The other defences taken by the defendants in their applications for
leave to defend are also not found to be entitling the defendants to trial, even
though no arguments have been addressed thereon. Rather than the suit
against the principal debtor and the guarantor being bad for mis-joinder of
parties, the law in fact requires joinder of such causes of action. Similarly,
the non filing of the original documents in the suit under Order 37 of the
CPC is not fatal when there is no dispute thereof and when the same are
shown to be filed in Section 138 Negotiable Instruments Act proceedings.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 24 of 27
The offer of the defendants to honour the 2008 Agreements with the
plaintiffs, when the same stand substituted as aforesaid, is of no avail. It is
too late in the day, to also contend that the claim for interest is beyond the
scope of summary procedure. The claim in the present suit is not based on a
mortgage and thus the plea in the applications for leave to defend of the
Mortgage Deed being required to be registered and not registered is not
relevant. The substantive rights of the plaintiff for recovery of monies from
the defendant cannot be denied on the grounds of concealment. The senior
counsel for the defendants has also failed to demonstrate as to how the suit is
barred by the provisions of the Money Lending Act or Usurious Interest Act.
No arguments on the improper stamping or non registration of the
documents have also been addressed. I am otherwise unable to find any
defects to the said effect. I am also unable to find any merit in the argument
that the Loan Agreements are without consideration for the reason of the
language thereof suggesting that the loan was still to be given and in fact
having already been given. There is even otherwise nothing triable in the
said pleas.
19. I have enquired from the senior counsel for the defendants whether
the defendants have taken any plea in their applications for leave to defend
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 25 of 27
with respect to the deduction at source of the tax on the interest amount due
from the defendant No.1 to the plaintiffs and for which post dated cheques
were issued by the defendant No.1 to the plaintiffs. The answer is in the
negative. The defendants under the law are required to deposit the tax so
deducted with the authorities. The defendants have not taken any stand
whether the tax was so deposited or not. Under the law, the tax once
deducted, is required to be deposited. The defendants cannot be permitted to
take a contrary stand before this Court from that taken before the Taxation
Authorities. The defendants cannot before the Taxation Authorities state
that they have taken a loan from the plaintiffs and are paying interest thereon
and before this Court deny any loan transaction. I have in Chemical
Systems Technologies (India) Pvt. Ltd. supra, held the same also to be
impermissible.
20. I am therefore of the opinion that neither is the plea of “money
rotation transaction” such which requires any trial nor is the plea of the
admitted documents, post dated cheques issued by the defendants being a
sham worth of trial. They are moonshine.
21. The applications for leave to defend are thus rejected.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 26 of 27
22. However as per the averments of the plaintiffs, the liability made out
is of the defendant No.1 Company and the defendant No.2 in CS(OS)
No.47/2011 and of the defendants No.1, 2 and 4 in CS(OS) No.48/2011.
The only case pleaded against the defendant No.3 is of being a Director of
the defendant No.1 Company. However a person owing to being a Director
of a company does not become personally liable for dues of the company.
No case against the defendant No.3 Smt. Neelam Goyal is thus made out and
the suit as far as against her, is dismissed.
23. A decree is accordingly passed in favour of the plaintiff in each case
and against the defendants, as sought for Rs.5,75,17,240/- and
Rs.9,94,14,041/- respectively. Though the parties had agreed to payment of
interest at the rate of 36% per annum but interest pendente lite and future is
restricted at 9% and 15% respectively and only on the principal amount of
loan in each case. The plaintiffs shall also be entitled to costs in accordance
with law. Decree sheet be drawn up.
RAJIV SAHAI ENDLAW, J
MARCH 19, 2013
„gsr‟
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 27 of 27
th
% Date of decision: 19 March, 2013
+ CS(OS) 47/2011
SATYENDRA JAIN ..... Plaintiff
Through: Mr. Sanjeev Puri, Sr. Adv. with Mr.
Sanjay Sarin, Mr. Tarun Rana & Ms.
Gagan Deep Kaur, Advs.
versus
M/S OMWAY BUILDESTATE PVT. LTD. & ORS.... Defendants
Through: Mr. Amit Chadha, Sr. Adv. with Mr.
Kunal Sinha, Adv.
AND
+ CS(OS) 48/2011
RAVI SHARMA ..... Plaintiff
Through: Mr. Sanjeev Puri, Sr. Adv. with Mr.
Sanjay Sarin, Mr. Tarun Rana & Ms.
Gagan Deep Kaur, Advs.
versus
M/S OMWAY BUILDESTATE PVT. LTD. & ORS.... Defendants
Through: Mr. Amit Chadha, Sr. Adv. with Mr.
Kunal Sinha, Adv.
CORAM :-
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW
RAJIV SAHAI ENDLAW, J
IA No.17660/2011 [u/O 37 R-3(5)] in CS(OS) No.47/2011 and IA
No.17661/2011 [u/O 37 R-3(5)] in CS(OS) No.48/2011 (both for grant of
leave to defend)
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 1 of 27
1. Applications for leave to defend the two suits under Order 37 of the
Code of Civil Procedure, 1908 for recovery of Rs.5,75,17,240/- and
Rs.9,94,14,041/- with interest and costs are for adjudication. The two suits,
though by different plaintiffs, are against the same defendants No.1 to 3 save
that there is an additional defendant No.4 in CS(OS) No.48/2011. The suits
are being listed together and the same set of counsels have made the same
arguments in both the suits.
2. The suits were filed pleading:
(i) That the defendant No.2 in both the suits viz. Mr. Janak Goyal,
being the Director of the defendant No.1 Company, had
approached the plaintiff in each of the suits in January, 2010 for
business loan of Rs.4,35,00,000/- and Rs.7,50,00,000/-
respectively for the purpose of promoting and developing the
business of the defendant No.1 Company.
(ii) That the defendant No.3 Smt. Neelam Goyal is also a Director
of the defendant No.1 Company.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 2 of 27
(iii) That the defendants required the subject loan for the period with
effect from 20.01.2010 to 31.05.2010 extendable upto
30.09.2010 with interest thereon at 36% per annum.
(iv) That the plaintiff in CS(OS) No.47/2011 agreed to lend the said
loan to the defendant No.1 Company on the guarantee of the
defendant No.2 and the plaintiff in CS(OS) No.48/2011 agreed
to lend the said loan to the defendant No.1 Company on the
guarantee of the defendants No.2 and 4.
(v) That the defendant No.1 executed the Loan Agreements dated
20.01.2010 with each of the plaintiffs and the defendant No.2
stood as guarantor with respect to the loan subject matter of
CS(OS) No.47/2011 and the defendants No.2 and 4 stood as
guarantors with respect to the loan subject matter of CS(OS)
No.48/2011 and in pursuance to the said Agreements, loan was
advanced by each of the plaintiffs and the defendants agreed to
pay interest at the rate of 36% per annum on the said loan.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 3 of 27
(vi) That the loan amount was disbursed vide cheques, particulars
whereof are given in the plaint in each of the two suits and
which were duly encashed by the defendant No.1 Company.
(vii) That the loan was secured by, mortgage by delivery of title
deeds of the properties described in the plaint in each suit, post
dated cheques and guarantee of defendant No.2 in CS(OS)
No.47/2011 and guarantee of defendants No.2 and 4 in CS(OS)
No.48/2011.
(viii) That a Memorandum of Mortgage by deposit of title deeds was
also executed.
(ix) That the defendants defaulted in repayment of the loan even
within the extended period of 30.09.2010.
(x) That the post dated cheques issued in favour of the plaintiffs in
each of the suits in repayment of the loan amount were also
returned dishonoured with the endorsement of the bank of the
defendant No.1 Company of “owing to insufficiency of funds”
in the account of the defendant No.1 Company.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 4 of 27
(xi) That notices demanding the amount were got issued by the
plaintiffs to the defendants and subsequently complaints of
offences under Section 138 of the Negotiable Instruments Act,
1881 also instituted.
These suits for recovery of the principal amount of the loan together
with interest thereon at 36% per annum till the institution of the suits and the
amount already deducted by the defendant No.1 Company towards tax at
source from the interest amount, were filed under Order 37 of the CPC.
3. In response to the summons for appearance, appearance was filed on
behalf of the defendants, summons for judgment issued and the defendant
No.1 Company has filed IA No.17660/2011 and the defendants No.2 and 3
have filed IA No.17659/2011 in CS(OS) No.47/2011 for leave to defend and
defendant No.1 Company has filed IA No.17661/2011 and the defendants
No.2 & 3 have filed IA No.17662/2011 and the defendant No.4 has filed IA
No.17763/2011 in CS(OS) No.48/2011 for leave to defend. However, as
aforesaid, the same senior counsel on behalf of both the plaintiffs and the
senior counsel on behalf of the defendants in both the suits have raised
common arguments. Need is thus not felt for referring separately to each of
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 5 of 27
the applications for leave to defend and reference hereinafter shall be made
to the leave to defend of the defendant No.1 Company only.
4. The grounds urged in the affidavits accompanying the applications for
leave to defend are as under:
i) That the suit against the defendant No.3 on the ground of her
being the Director of the defendant No.1 Company and against
the defendants No.2 and 4 as guarantors, is bad for misjoinder
of parties and cannot be tried as a summary suit.
ii) That the original documents on which the suit is based have not
been filed and the suit is thus not maintainable under Order 37
as the plaintiffs will have to lead evidence requiring trial.
iii) That the defendants are still willing to honour their
commitments of allotting the “said plot of land” to the plaintiffs
after the clearance of already pending Court cases.
iv) That the claim for interest is beyond the scope of summary
procedure.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 6 of 27
v) That the alleged mortgage deed is neither registered nor is it
properly stamped and no reliance can be placed thereon.
vi) That the defendant No.1 Company had started a project at
Alwar in Rajasthan under the name and style of Park City
Alwar which has got delayed owing to certain disputes having
arisen with respect thereto.
vii) That the plaintiff in CS(OS) No.47/2011 and M/s Astute Real
Estate Pvt. Ltd. of which the plaintiff in CS(OS) No.48/2011
and his wife were Directors, had approached the defendants in
the year 2008 for purchase of 7556 and 16933 sq. fts. super area
respectively of the ground floor of the said project and had paid
Rs.50,00,000/- and Rs.1,50,00,000/- respectively to the
defendant No.1 and in respect of the same mortgage deed as
demanded by the plaintiffs were signed and post dated cheques
given as security.
viii) An MOU dated 01.08.2008 and 18.10.2008 respectively was
entered into for the said purpose and further amounts paid
thereunder to the defendant.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 7 of 27
ix) Further amounts were paid for the said project.
x) That the rate at which commercial space was so agreed to be
sold were concessional rates and the Agreements signed were
not normal booking agreements made by the defendants in the
due course of their business but had been drafted by the
plaintiff in each case.
xi) That the plaintiff in CS(OS) No.47/2011 is a Chartered
Accountant and the plaintiff in CS(OS) No.48/2011 had
approached the defendants through the plaintiff in CS(OS)
No.47/2011 only.
xii) Further Agreement dated 10.10.2008 was also entered into with
plaintiff in CS(OS) No.47/2011 for 3307 sq. fts. developed
space and further amounts paid thereunder.
xiii) However owing to disputes aforesaid, the development of the
project was held up.
xiv) That the total money received by the defendant No.1 Company
from the plaintiff No.1 in CS(OS) No.47/2011 is
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 8 of 27
Rs.1,00,00,000/- only and from M/s Astute Real Estate Pvt.
Ltd. is Rs.1,75,00,000/- only.
xv) That the defendants are ready and willing to handover the
allotted space to the plaintiffs in each of the cases as soon as the
stay orders owing to which the development of the project is
held up are vacated.
xvi) That each of the plaintiffs forced the defendant to sign the
Agreements dated 20.01.2010.
xvii) That the Loan Agreements dated 20.01.2010 are a farce and do
not record the understanding or the agreements between the
parties inasmuch as the amounts of Rs.4,35,00,000/- and
Rs.7,50,00,000/- were never paid by the plaintiffs to the
defendant by way of loan.
xviii) That the account with the Bank of Baroda, Lajpat Nagar
Branch, New Delhi in which the loan amount was given was
not the normal account of the defendant No.1 Company but had
been opened a day or two prior to the Agreements dated
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 9 of 27
20.01.2010 and the plaintiff only had introduced the defendant
No.1 Company for the purposes of opening the account as the
plaintiff in each case had a long standing account with the said
Branch.
xix) That the modus operandi was that the cheques would be
deposited by the plaintiffs on one day and would thereafter be
taken out by the plaintiffs themselves on the basis of signed
cheques taken by them.
xx) That the fact of the matter is that the two plaintiffs had
advanced Rs.1,00,00,000/- and Rs.1,75,00,000/- respectively
only to the defendant and in the case of CS(OS) No.48/2011, in
respect of M/s Astute Real Estate Pvt. Ltd., money was sought
to be shown as given by the plaintiff therein namely Mr. Ravi
Sharma.
xxi) That even the Loan Agreements dated 20.01.2010 provide that
if the project of the defendant No.1 Company is approved, the
area which is given as security would be given to the plaintiff in
each case at Rs.2,250/- per sq. ft.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 10 of 27
xxii) That the plaintiffs have deliberately and mala fidely concealed
the Agreements of 2008.
xxiii) That the suit is barred under the provisions of the Money
Lending Act, Usurious Interest Act and also on account of the
fact that the documents are improperly stamped and
unregistered.
It is thus the case of the defendants that triable issues arise.
5. The senior counsel for the defendants has confined his
arguments to the transaction of the year 2010 being a “money rotation
transaction”. On being enquired as to what is a “money rotation
transaction”, the senior counsel during the hearing on 31.01.2013 informed
that such transactions are common and are done to show huge volume of
business with money going in and coming out of the account, to enable the
account holder to obtain a loan from the Bank. On being asked as to
whether that was the criteria of any of the banks for granting loan, the senior
counsel promised to show loan documents of banks on the next date of
hearing but did not show anything in the adjourned hearing on 06.02.2013. I
find the said arguments unpalatable. The creditworthiness cannot possibly
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 11 of 27
be judged on the basis of large amounts of money being credited and debited
and logic tells, has to be judged either on the profitability and soundness of
the business and / or on the assets of a prospective debtor from which the
loans if any remaining outstanding can be realized.
6. The senior counsel for the defendants then drew attention to the
factum of the plaintiffs only having introduced the defendant No.1 Company
for the purpose of opening the account with the bank in which the loan
amounts stated to be given by each of the plaintiffs to the defendant No.1
were credited. He has with the help of a chart handed over during the
hearing shown that three cheques of the total value of Rs.4,35,00,000/- were
th th
on 19 & 20 January, 2010 transferred from the account of the plaintiff in
CS(OS) No.47/2011 into the account of the defendant No.1 and four cheques
of the total value of Rs.7,50,00,000/- were transferred from the account of
the plaintiff in CS(OS) No.48/2011 into the bank account of the defendant
No.1. It is further shown that a total sum of Rs.5,43,15,669/- was transferred
from the same account of the defendant No.1 to the account of plaintiff in
th th
CS(OS) No.47/2011 on 18 & 20 January, 2010 and a total sum of
th th
Rs.6,30,75,211/- was transferred on 19 & 20 January, 2010 from the
account of defendant No.1 to the account of M/s Astute Real Estate Pvt. Ltd.
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 12 of 27
7. The senior counsel for the defendants has next invited attention to a
report submitted by Serious Fraud Investigation Office (SFIO) of the
Ministry of Corporate Affairs, Government of India in Company Petition
No.277/2011 filed by the plaintiff in CS(OS) No.48/2011 for winding up of
the defendant No.1 Company. It is argued that the argument of the
defendants of the transaction between the parties being a “money rotation
transaction” is supported from the said report also. The senior counsel has
further argued that the cheques of the plaintiff in each case, by which the
loan in each case is stated to be disbursed to the defendant No.1 Company,
are of prior to the date of the Agreements and there is no disbursement of
loan after the Loan Agreements dated 20.01.2010 and the Agreements are
thus without consideration and cannot be relied upon. Reference in this
regard is made to the language of the Agreements which is of the loan being
disbursed in pursuance thereto and not of having already been disbursed.
The senior counsel has thus argued that the defence of the defendants is a
triable one and cannot be called a moonshine and the defendants are thus
entitled to leave to defend.
8. The senior counsel for the plaintiffs has argued that the plaintiffs do
not deny the transactions of the year 2008 of the plaintiff in CS(OS)
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 13 of 27
No.47/2010 and of M/s Astute Real Estate Pvt. Ltd. of which the plaintiff in
CS(OS) No.48/2011 is a Director, with the defendant No.1 Company. He
has invited attention to the documents of the said transaction filed by the
defendants themselves and has shown that the monies paid by the plaintiffs
in CS(OS) No.47/2011 and by M/s Astute Real Estate Pvt. Ltd. of which the
plaintiff in CS(OS) No.48/2011 is a Director, to the defendant No.1
Company in the year 2008 though against booking of space were refundable
with interest mentioned therein as incidental charges, after a particular date
and even the defendant No.1 Company had an option under the said Booking
Agreements of the year 2008 to so refund the monies with incidental charges
and was not obliged to give space only in pursuance to the said Agreements.
The senior counsel for the plaintiffs further states that the accounts between
the plaintiff in CS(OS) No.47/2011 and M/s Astute Real Estate Pvt. Ltd. of
which plaintiff in CS(OS) No.48/2011 is a Director, and the defendant No.1
relating to the said flat Booking Agreements of the year 2008 stand settled
and neither plaintiff in CS(OS) No.47/2011 nor M/s Astute Real Estate Pvt.
Ltd. is now claiming any rights under the said Loan Agreements and the
plaintiffs are claiming rights only under the Loan Agreements of 20.01.2010.
On enquiry, whether any documents of closure of the 2008 transaction were
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 14 of 27
executed, it is informed that no such documents were executed. He has
further shown that though the defendant No.1 while issuing post dated
cheques for refund of the loan amount under the Loan Agreements dated
20.01.2010 with interest, deducted tax at source of Rs.10,85,474/- and
Rs.19,45,479/- respectively and endorsement whereof is to be found on the
reverse of the cheques but no TDS Certificates also have been issued to the
defendants. He has further taken me through the SFIO report to contend
that the same supports the version of the plaintiffs rather than that of the
defendants. Attention is also invited to the statement of the defendants
recorded on 02.05.2011 in the Court of Sh. Vikrant Vaid, MM (NI Act)-
02/South, where it was stated that the cheque was given as security to be
presented „upon failure of the defendants to abide by the terms and
conditions of the Agreement‟. It is argued that the Loan Agreements dated
20.01.2010 which in the application for leave to defend is being called a
farce, is not denied in the said proceedings. The senior counsel for the
plaintiffs relies on Ms. V.K. Enterprises Vs. M/s Shiva Steels AIR 2010 SC
2885 to contend that where the issuance of the cheque on which the suit
under Order 37 of the CPC is based is not disputed, leave to defend has to be
refused. It is further argued that the defendants had been injuncted vide
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 15 of 27
order dated 22.01.2007 in OMP No.36/2007 filed by some other person,
from dealing with the land which in pursuance to the Loan Agreement dated
20.01.2010 was mortgaged with the plaintiffs. It is stated that owing to the
earlier injunction order, the said mortgage is useless. Copy of the application
dated 13.08.2010 filed by the defendant No.1 in S.B. Civil Writ Petition
No.195/2009 titled M/s Omway Buildestate Pvt. Ltd. Vs. Divisional
Commissioner, Jaipur is also handed over during the hearing to show that
the defendant No.1, therein, has admitted liability to pay interest to the
plaintiffs.
9. The senior counsel for the defendants in rejoinder has argued that the
plaintiffs in the plaint did not disclose the earlier Agreements of the year
2008 with the defendant No.1 and portrayed the loan transaction of the year
2010 to be a standalone transaction and cannot now be permitted to explain
away on the basis of said earlier transaction. It is argued that had the
plaintiffs made a case, as is now being made, of the transaction of the year
2008 being squared off and no claim surviving therein, the defendants would
have had an opportunity to give their reply with respect thereto. On enquiry
as to whether according to the defendants, the transaction of the year 2008
was still alive, the senior counsel for the defendants answered in the
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affirmative. The senior counsel for the defendants has further argued that no
money in the year 2010 at the time of the alleged loan came from the
pockets of the plaintiffs to the pocket of the defendants. It is further argued
that evidence is to be directed to be led to substantiate the plea of the
transaction of the year 2010 being a sham and the defendants at this stage
are only required to show that their defence is not a moonshine. It is stated
that the defendants in their documents have filed a copy of the ledger of M/s
Astute Real Estate Pvt. Ltd. in the books of accounts of the defendants,
where monies are still shown as due from the defendant No.1 Company to
M/s Astute Real Estate Pvt. Ltd. It is further explained that the earlier
injunction of 22.01.2007 in OMP No.36/2007 was vacated by the Arbitrator
in the year 2010. It is further argued that the land of which mortgage has
been given is outside the developed land and is still good security. It is
further contended that the title deeds of the properties of the defendants in
fact were deposited with the plaintiffs pursuant to the Booking Agreements
of 2008 and not in pursuance of the Agreement of 2010. The senior counsel
has argued that it is a question of evidence as to what is the exact nature of
relationship between the parties and when two views are possible, the
principle is that leave to defend should be granted. As far as the reliance by
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the plaintiffs on the report of SFIO is concerned, the senior counsel for the
defendants has argued that the defendants have not had the opportunity to
cross examine the persons examined by the SFIO and which opportunity the
defendants would have upon leave being granted and during the trial of the
present suit.
10. I have considered the rival submissions. What is abundantly borne
out is that, the execution of the Loan Agreements of 20.01.2010 and
issuance of the cheques in repayment of loan with interest, on which the suit
is based, is no disputed.
11. The Loan Agreements of the year 2010 are unequivocal and record, i)
loan having been advanced by each of the plaintiffs to the defendant No.1
and the terms of the said loan; ii) guarantees furnished by the other
defendants for repayment thereof; iii) equitable mortgage having been
created to secure the said loans; iv) post dated cheques for repayment of the
loan amount with interest due having been issued; and, v) tax having been
deducted thereon.
12. The argument of the senior counsel for the defendants, of the
transactions of the year 2010 in the bank account of the defendant No.1
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 18 of 27
Company being a “money rotation transaction”, besides being illogical and
having remained unsubstantiated during the arguments, does not have any
foundation in the application for leave to defend. The said argument appears
to have been taken by the senior counsel from the report of the SFIO.
However the SFIO has not reported that the transactions were only intended
for transfer of monies from one account to another.
13. The position which emerges from the entire narration aforesaid and
the documents on record, according to me is clear as day light, though the
parties to the suit for their own reasons may have avoided to so spell out the
same. The plaintiffs (the plaintiff in CS(OS) No.48/2011 through his
company M/s Astute Real Estate Pvt. Ltd.) had in the year 2008 advanced
certain monies to the defendant No.1 and which in 2008 were given the
colour of advance sale consideration / booking amount for the built up space
being developed by the defendant No.1. However, the defendants
themselves in their leave to defend application admit that the 2008
transaction between the parties was not the same as of the defendant No.1
with it is other flat buyers. The defendant No.1 thereunder, agreed to
provide collateral security in the form of title deeds to secure the advance
consideration / booking money paid by the plaintiffs to the defendant No.1.
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Not only so, the defendant No.1 also agreed to buy back the said space from
the plaintiffs at a consideration far more than the consideration at which it
had agreed to sell the same space to the plaintiffs. Though the additional
amount which was to become payable to the plaintiffs on repurchase of the
said space by the defendant No.1 was described as „incidental charges‟ but
experience of life shows that the same was nothing but an interest for the
period of time after which the buyback / repurchase was agreed to be
effected. This is also evident from the fact that the defendant No.1 also
issued post dated cheques for the buyback / repurchase price.
14. It is admitted by the defendants themselves that the project for which
finances had, in the aforesaid manner, been provided by the plaintiffs to the
defendant No.1, was held up. The defendant No.1, under the Agreements of
the year 2008 and the post dated cheques issued at that time, was liable to
refund not only the principal amount of Rs.1,00,00,000/- and
Rs.1,75,00,000/- admittedly received from the plaintiffs, but also the
incidental charges and / or the repurchase price which the defendant No.1
had agreed to pay to the plaintiffs and which the defendant No.1 had
admittedly been unable to pay to the plaintiffs owing to the project being
held up. The execution of the Agreements of the year 2010 show that the
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 20 of 27
parties then decided to give the transaction of financing, earlier in the year
2008 given the colour of a Flat Booking Agreement, the true colour of Loan
Agreement. However to show such a loan transaction, money was required
to be shown to have flown from the plaintiffs to the defendant No.1 and for
which purposes the account aforesaid of the defendant No.1 was opened in
the bank and monies transacted. Further however, since the aforesaid
monies were already with the defendant No.1 under the Flat Booking
Agreements of the year 2008 and were not required to be again given to the
defendant No.1, the monies in the said account shown to have been
advanced by the plaintiffs to the defendant No.1 were directed back into the
accounts of the plaintiffs and M/s /s Astute Real Estate Pvt. Ltd. To my
mind, the defendants now cannot be permitted to rake up the transactions of
the year 2008, to ward off their liabilities under the transaction of the year
2010.
15. The parties are dealing in large volume of financing. They have
reduced their transaction into writing. Should this Court, inspite of such
writings, and inspite of seeing through the real transaction as aforesaid
which is clearly visible through the documents, still insist on trial. In my
st
view, no. I have recently in judgment dated 1 February, 2013 in CS(OS)
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 21 of 27
th
No.1480/2009 (corrected and released on 4 March, 2013) titled Chemical
Systems Technologies (India) Pvt. Ltd. Vs. Simbhaoli Sugar Mills Ltd.
held that unless the Courts construe pleadings in commercial disputes, taking
note of the modern prevalent business practices, they will be failing in their
duty towards trade and commerce, flourishing whereof depends upon
expeditious disposal of disputes. The pleadings and transactions of
commercial persons cannot be viewed on the same principles as applicable
to transactions between family members or laypersons. A commercial /
business person who has signed documents and issued cheques in pursuance
thereto cannot be lightly allowed to shake off the effect of such documents.
We are here not dealing with villagers but with astute street-smart, hard-
nosed, shrewd businessmen. The Courts cannot be blind to the prevalent
business practices and environment and cannot afford to continue to decide
modern day transactions on ancient principles / precedents. If the Courts
continue to do so, it will be a great disservice to the administration of the
justice delivery system which will then be forced to look at unconstitutional
dispute resolution mechanisms. The Courts have to necessarily keep pace
with the innovations of businesses and business practices and the Court will
always be slow to find that the written agreement does not represent the
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 22 of 27
actual agreement between the parties on the matters which it addresses. This
is necessary, both to promote commercial certainty and to prevent parties
from achieving what is effectively rectification without proving a common
intention. Judge Learned Hand as far back as in James Baird Co. v. Gimbel
Bros., Inc. 64 F.2d 344, 346 said that in commercial transactions it does not
in the end promote justice to seek strained interpretations in aid of those who
do not protect themselves. The same sentiment was echoed in Allied
Communications Corporation Vs. Continental Cellular Corporation
MANU/FEFC/0637/1987 where it was observed that when the transaction is
commercial, the parties sophisticated, and the contract itself detailed, it is
wise for the Courts to rely on express language than to imply a promise on
their own.
16. Though the law permits a plea of a transaction being a sham one but
for such a plea to be taken, the circumstances in which the person (pleading
the transaction to be a sham) was made to succumb thereto and the reasons
for creating a camouflage have to be pleaded. There is no pleading
whatsoever to this effect in the leave to defend applications of the
defendants. Upon the same being put to the senior counsel for the
defendants, he stated that the reasons would be given in the written
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 23 of 27
statement. This cannot be an argument for seeking leave to defend under
Order 37. It is incumbent upon the defendant applying for leave to defend to
make out a plausible case and the defendant cannot be heard to state that the
case will be made after the leave to defend is granted.
17. The defendants having signed the loan Agreements and having issued
post dated cheques, are bound thereby and if commercial men, especially
those dealing in large sums of monies, are not held to be bound by their
writings, signatures and by the negotiable instruments admittedly executed
by them, the wheels of business which turn on monies, loans and finances
will stop rotating.
18. The other defences taken by the defendants in their applications for
leave to defend are also not found to be entitling the defendants to trial, even
though no arguments have been addressed thereon. Rather than the suit
against the principal debtor and the guarantor being bad for mis-joinder of
parties, the law in fact requires joinder of such causes of action. Similarly,
the non filing of the original documents in the suit under Order 37 of the
CPC is not fatal when there is no dispute thereof and when the same are
shown to be filed in Section 138 Negotiable Instruments Act proceedings.
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The offer of the defendants to honour the 2008 Agreements with the
plaintiffs, when the same stand substituted as aforesaid, is of no avail. It is
too late in the day, to also contend that the claim for interest is beyond the
scope of summary procedure. The claim in the present suit is not based on a
mortgage and thus the plea in the applications for leave to defend of the
Mortgage Deed being required to be registered and not registered is not
relevant. The substantive rights of the plaintiff for recovery of monies from
the defendant cannot be denied on the grounds of concealment. The senior
counsel for the defendants has also failed to demonstrate as to how the suit is
barred by the provisions of the Money Lending Act or Usurious Interest Act.
No arguments on the improper stamping or non registration of the
documents have also been addressed. I am otherwise unable to find any
defects to the said effect. I am also unable to find any merit in the argument
that the Loan Agreements are without consideration for the reason of the
language thereof suggesting that the loan was still to be given and in fact
having already been given. There is even otherwise nothing triable in the
said pleas.
19. I have enquired from the senior counsel for the defendants whether
the defendants have taken any plea in their applications for leave to defend
IA No.17660/2011 in CS(OS) No.47/2011 & IA No.17661/2011 in CS(OS) No.48/2011 Page 25 of 27
with respect to the deduction at source of the tax on the interest amount due
from the defendant No.1 to the plaintiffs and for which post dated cheques
were issued by the defendant No.1 to the plaintiffs. The answer is in the
negative. The defendants under the law are required to deposit the tax so
deducted with the authorities. The defendants have not taken any stand
whether the tax was so deposited or not. Under the law, the tax once
deducted, is required to be deposited. The defendants cannot be permitted to
take a contrary stand before this Court from that taken before the Taxation
Authorities. The defendants cannot before the Taxation Authorities state
that they have taken a loan from the plaintiffs and are paying interest thereon
and before this Court deny any loan transaction. I have in Chemical
Systems Technologies (India) Pvt. Ltd. supra, held the same also to be
impermissible.
20. I am therefore of the opinion that neither is the plea of “money
rotation transaction” such which requires any trial nor is the plea of the
admitted documents, post dated cheques issued by the defendants being a
sham worth of trial. They are moonshine.
21. The applications for leave to defend are thus rejected.
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22. However as per the averments of the plaintiffs, the liability made out
is of the defendant No.1 Company and the defendant No.2 in CS(OS)
No.47/2011 and of the defendants No.1, 2 and 4 in CS(OS) No.48/2011.
The only case pleaded against the defendant No.3 is of being a Director of
the defendant No.1 Company. However a person owing to being a Director
of a company does not become personally liable for dues of the company.
No case against the defendant No.3 Smt. Neelam Goyal is thus made out and
the suit as far as against her, is dismissed.
23. A decree is accordingly passed in favour of the plaintiff in each case
and against the defendants, as sought for Rs.5,75,17,240/- and
Rs.9,94,14,041/- respectively. Though the parties had agreed to payment of
interest at the rate of 36% per annum but interest pendente lite and future is
restricted at 9% and 15% respectively and only on the principal amount of
loan in each case. The plaintiffs shall also be entitled to costs in accordance
with law. Decree sheet be drawn up.
RAJIV SAHAI ENDLAW, J
MARCH 19, 2013
„gsr‟
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