w w w . L a w y e r S e r v i c e s . i n



M/S. Punj Star Industries Pvt. Ltd v/s ATNA Engineering Pvt. Ltd.& Others


Company & Directors' Information:- PUNJ CORPORATION PRIVATE LIMITED [Active] CIN = U29253DL2010PTC197999

Company & Directors' Information:- STAR INDUSTRIES PRIVATE LIMITED [Active] CIN = U24100MH1981PTC025046

Company & Directors' Information:- D P ENGINEERING INDUSTRIES LIMITED [Active] CIN = U27310DL2008PLC176856

Company & Directors' Information:- A K ENGINEERING INDUSTRIES (INDIA) PRIVATE LIMITED [Active] CIN = U25206DL1997PTC085204

Company & Directors' Information:- G L ENGINEERING INDUSTRIES PRIVATE LIMITED [Active] CIN = U28920MH1981PTC023662

Company & Directors' Information:- ATNA ENGINEERING PVT LTD [Amalgamated] CIN = U74899DL1984PTC017736

Company & Directors' Information:- PUNJ ENGINEERING PRIVATE LIMITED [Active] CIN = U34101DL2003PTC121423

Company & Directors' Information:- B V M ENGINEERING INDUSTRIES LIMITED [Active] CIN = U28111DL1972PLC005983

Company & Directors' Information:- R R R ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U74899DL1993PTC055069

Company & Directors' Information:- A. V. ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U99999DL1974PTC007360

Company & Directors' Information:- G D R ENGINEERING INDUSTRIES PVT LTD [Strike Off] CIN = U27109UP1971PTC003388

Company & Directors' Information:- L S ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U74899DL1977PTC008484

Company & Directors' Information:- I B I ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U45202PB1974PTC003422

Company & Directors' Information:- A H B ENGINEERING INDUSTRIES PVT LTD [Strike Off] CIN = U35999WB1988PTC044786

Company & Directors' Information:- O K ENGINEERING INDUSTRIES PRIVATE LTD [Active] CIN = U74899DL1987PTC027660

Company & Directors' Information:- R P ENGINEERING INDUSTRIES PRIVATE LIMITED [Strike Off] CIN = U99999DL1973PTC006781

Company & Directors' Information:- STAR M S R ENGINEERING PRIVATE LIMITED [Under Process of Striking Off] CIN = U74210TN2010PTC076877

Company & Directors' Information:- S V ENGINEERING INDUSTRIES PVT LTD [Under Liquidation] CIN = U74210TG1981PTC003174

    CS (OS) 4607 of 1992

    Decided On, 06 September 2010

    At, High Court of Delhi

    By, THE HONOURABLE MR. JUSTICE S. RAVINDRA BHAT

    For the Petitioner: Shri Naresh Thanai, Advocate. For the Respondents: Shri Sudhir Nandrajog, Sr. Advocate with Ms. Babli & Ms. Sangeeta, Advocates.



Judgment Text

1. In this suit, a joint and several decree for ` 96,31,953.04/- is sought against the defendants; the plaintiff also claims pendente lite and future interest @ 15% per annum, with costs.


2. The plaintiff (hereafter referred to as ?Punj Star?) contends to being incorporated as a public limited company. The first defendant (hereafter ?Atna?) is described as a private investment company; the second and third defendants, (hereafter ?SNP Punj? and ?Uday Punj?) were its Directors. It is stated that Punj Star was always owned and controlled by Punj Brothers. The financial affairs of all the Punj Group of Companies at the relevant time, i.e. 1987-1989 (it is alleged) were controlled and managed by the SNP Punj. Punj Star states that some inter se family disputes were referred to arbitration, which culminated in an award made in 1987 that was made rule of Court, which led to Punj Star becoming a company controlled by Mr. S.N.P. Punj, Mr. V.P. Punj, Mr. R.P. Punj, Mr. N.P. Punj and their families. The suit mentions about a subsequent partition through a settlement in 1989, allegedly accepted by four brothers and implemented by the companies and also business undertakings controlled by each of them. It is alleged that Atna is an investment company always owned and controlled by SNP Punj and his family including Uday Punj. It is alleged that the several liabilities of Atna are attributable to other defendants and that any activities on behalf of Atna also make the latter liable, since it is their corporate face.


3. The suit alleges that the second and third defendants were the Managing Director and/or Directors of Punj Star at the relevant time and were not empowered to act beyond the powers conferred upon them, which included a prohibition from withdrawing funds for their own purposes. The plaintiff refers to the said defendants holding the position as Directors in a fiduciary capacity, i.e. as holding offices in trust. It is contended that while holding such capacity, the said defendants abused their position with a view to derive personal advantage by issuing cheques dated 06.10.1987, 05.01.1988, 02.04.1988, 20.07.1988 and 24.05.1989, totaling` 60,68,000/-, though ostensibly acting as Directors.


4. The plaintiff alleges that its funds were to be applied by the then Directors ? (SNP Punj and Uday Punj) for defined purposes and could not have been diverted in the manner actually done by them; according to the suit, such acts amount to misfeasance. The plaintiff refers to SNP Punj and the companies of his group as ?SNP Group? and submits on 09.11.1989, in a communication by the SNP Group, the said defendant acknowledged liability in respect of the ` 60,68,000/- to Punj Star. The suit also refers to a communication dated 23.01.1990 confirming the amount payable by SNP Group to Punj Star for the funds released by them. It is submitted that Uday Punj confirmed liability for the amount of ` 40 lakhs, on behalf of Atna and that the same had been taken from it, i.e. Punj Star.


5. The suit alleges that defendants failed to pay the amounts. It also refers to communications and demands made by Punj Star on various dates, asking the defendants to pay the said amounts, i.e. ` 60,68,000/-. The plaintiff claims interest @15% till the date of filing of suit, since the amounts were not paid within the time agreed, which works out to `96,31,953.04/- On the strength of these allegations, the plaintiff claims the reliefs in the suit.


6. The written statement was filed on behalf of the defendants on 13.09.1995. Significantly however, it does not bear signatures on behalf of Atna or of anyone ? not even its authorized Director or representative. It is contended in this written statement that the suit is not filed by competent individual. The written statement further alleges that no claim is maintainable since the award upon which it is based, was not made rule of Court. The written statement also contests that there is any relationship of debtor and creditor as between the parties. The defendants deny that Atna was exclusively owned by SNP Punj and Uday Punj or their family members; it is denied that they had siphoned-off the Punj Star?s monies. The defendants deny that at that time, (when the transaction took place), either of them were Directors or Managing Director of the plaintiff or that they had enabled the issuance of drafts (by Punj Star) by using the first defendant.


7. The written statement denies the allegation that SNP Punj and Uday Punj committed misfeasance or that Punj Star?s money was siphoned-off. It is contended that at no point in time, was any acknowledgement of debt (AoD) issued in the form of any document to the plaintiff. The written statement further alleges that the suit is liable to be dismissed as time-barred and also because it does not disclose any cause of action.


8. On 11.12.1996, this Court framed the following issues on the basis of the documents and pleadings:


(1) Whether the plaint had been signed, verified and filed by a duly authorized and competent person?


(2) Whether the suit is barred by limitation?


(3) Whether the suit is bad for misjoinder of parties?


(4) Whether defendant Nos. 2 and 3 did not withdraw money from the plaintiff in the name of defendant No.1 and if so, its effect?


(5) Whether the plaintiff is entitled to any amount and if so, from which of the


defendants?


(6) Whether the plaintiff is entitled to any interest and if so, at what rate and for which period?


(7) Relief.


Issue No.1:


9. To prove this Issue, the plaintiff examined PW-5, its employee. He deposed that the plaintiff is an incorporated company and produced its certificate of incorporation as Ex. PW-5/1. He deposed that the company was maintaining regular Minute Books in its normal course of business and that on 02.11.1992 it had authorized Sh. N.P. Punj to sign and verify the pleadings and institute the suit. PW-5 further deposed that he had written and recorded the minutes; he produced the resolution as Ex. PW-5/3. In the cross-examination, he said that he had the Minutes Register of the company and confirmed that he had indeed recorded the minutes for the day. His specimen signatures were taken. On an examination of these materials, which have not been seriously disputed by the defendants, the Court is of the opinion that the issue should be answered in favor of the plaintiff; it is, therefore, held that the suit was instituted by competent and duly authorized person, i.e. Sh. N.P. Punj.


Issue Nos.2, 4 and 5:


10. Issue No.2 pertains to limitation; it is intimately bound with Issue Nos. 4 and 5, which concerns the merits of the case and the liability of the defendants. The reason why all these issues are interconnected is that if the Court holds that the suit is time-barred, and rejects the plea that the defendants acknowledged their liability, that issue would automatically engage the latter?s liability. On the other hand, a positive finding in favor of the plaintiff would also substantially cover the other two issues.


11. The plaintiff alleges that on different occasions, cheques dated 06.10.1987, 24.05.1988, 24.05.1989, 05.01.1998, 02.04.1998 and 20.07.1998 were issued either by the second or third defendant, which resulted in withdrawal of amounts from its accounts. Copies of those cheques were tendered to DW-1, i.e. S.N.P. Punj was able to identify them on 01.02.2006, during crossexamination. The plaintiff relies on letters dated 29.11.1988/1989 and 23.01.1990 to say that the defendants acknowledged their liability to repay the amounts. The letter dated 23.01.1990 (Ex. PW-2/1) reads as follows:


?XXXXXX XXXXXX XXXXXX


MEMORANDUM

TO: MR. SURESH C. MATHUR

FROM: UDP

DATE: 23.01.1990


I refer to our meeting on 22.01.1990 wherein you had asked me to confirm the amounts payable by SNP group to PSIPL on account of funds used for capital financing PLPL through the various investment companies, now of SNP group. During the meeting I had informed you that this information was given to you before your award dated 15.11.1989. However, as desired by you the information is enclosed as Annexure A to this letter. I hope this is in order. You are requested to kindly pass on instructions that the movements of SNP group for their work going on at Kalkaji, as per Mr. N.P. Punj?s letter dated 2.11.1989, is not stopped. Also, as per the understanding and assurance given by you, please pass on instructions that there should be no hindrance or restriction on SNP group company?s movement, in and out, of finished product, plant and machinery, raw materials etc. from Kalkaji premises.


Regards UDP


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12. The letter dated 09.11.1989 (Ex. P-2/2), written by SNP Punj in this regard, in its relevant particulars reads as follows:


?XXXXXX XXXXXX XXXXXX


As per our discussions today, please note the following: -


1. Dev Automobiles Private Limited (SNP group investment company) holds 20,510/- shares in Lapinus Rockwool Private Limited (a company in dispute). Of these, scripts for 11,770 shares have been lodged with MPAVN. Balance scripts available with us are for 8,740 shares.


2. Atna Engineering Private Limited (SNP group investment company) holds 20,510 shares in Lapinus Rockwool Private Limited (a company in dispute). Of these, scripts of 11,770 shares have been lodged with MPAVN. Balance scripts available with us are for 8,740 shares.


3. A Non-disposal undertaking has been given by the above two companies Atna Engineering Private Limited and Dev Automobiles Private Limited to MPAVN/MPFC (financial institutions) that shares owned by them, present or future, of Lapinus Rockwool Private Limited, shall not be disposed off without the prior approval from the financial institutions.


4. The above two investment companies have a liability of Rs.41,34,900.00 p to PSIPL for purchase of these shares.


Please find enclosed herewith: -


1. Duly executed share transfer forms from Dev Automobiles and Atna Engineering for the transfer of 20,510 shares each. 2. 8,740 shares scripts issued by Lapinus Rockwool Private Limited favouring Atna Engineering Private Limited.


XXXXXX XXXXXX XXXXXX?


13. These two documents were proved and deposed to by PW-2, an official of the plaintiff, who stated about having received them from the second and third defendants. No suggestion was put to PW-2, disputing the genuineness of the letters. The plaintiff further relies upon two documents exhibited as PW-4/1 and PW-4/4, extracts from the certified copies of the balance sheet of Atna (Ex. PW-4/1) with auditor?s report of the first defendant, as on 31.03.1991. The same inter alia record an entry of unsecured loans from other creditors as ` 60,68,000/-. The same amount is shown for the previous year ending 31.03.1990. The other exhibit, i.e. PW-4/4 likewise records an entry of ` 16,08,000/-, as an unsecured loan payable to the plaintiff, i.e. M/s. Punj Star Industries. PW 4/2 and PW- 4/3 are the relevant list of Directors for the concerned years. PW-4, who deposed in support of these documents, was an official working with the Registrar of Companies.


14. In support of the claim that all the defendants are liable to the suit claim, the plaintiff had, apart from relying on the depositions of PW-1, 2 and 4 also summoned PW-3, an employee of Hongkong and Shanghai Bank (from which amounts were withdrawn). That witness PW-3 deposed that the records for the periods 1987-1991 had been destroyed. PW-4, an official from the office of the Registrar of Companies, produced certified copies of the relevant records summoned, i.e. notice of the returns filed by the first defendant company, which showed that the second and third defendants were Directors holding shares and controlling Atna. Atna?s balance sheet was signed by the auditor in of the second defendant. PW-5 deposed that the SNP Punj was the Director and Uday Punj was the Managing Director of Punj Star; certified copies of Form-32 recording that they were Punj Star?s Directors were produced as Ex. PW-5/2. The plaintiff?s Certificate of Incorporation (Ex. PW-5/1) is dated 13.08.1981. A certified copy of the said document shows that the second and third defendants were also Directors and that the other Director, Sh. Atul Punj resigned on 01.03.1990 and that Sh. V.P. Punj was appointed as Director on that date. PW-5, in his deposition, proved the ledger maintained by the plaintiff in the regular course of business, of October 1987 to March 1990; the copies of the ledger were marked as Ex. PW-5/10 and Ex. PW-5/11.


15. The defendants did not cross-examine this witness on the ledger or the books maintained by the plaintiff. In support of their case, the defendants examined DW-1. They, however, did not produce any documents. In his affidavit evidence, DW-1, SNP Punj denied ever being Director of the Atna and also denied that no amounts at any stage were withdrawn by him from the plaintiff?s account for his personal use. He further stated that during the period 1987 to 1989, he and his three brothers, including Sh. N.P. Punj were in joint business and whatever amounts were transferred between the companies belonged to and was to the benefit of all brothers and profits were shared by them equally. He denied that there was any agreement or loan between the parties and denied any liability of the first defendant to pay the amounts claimed or any interest. In his cross-examination, he admitted to the existence of the arbitration award dated 15.11.1989 and further stated that among the companies, which were divided between him and his three brothers, Atna fell to his share, as also M/s. Punj Lloyed Private Limited. He admitted about having corresponded with the arbitrator during and after the proceedings; he admitted to the letters dated 09.11.1989, 13.11.1989 and 23.11.1989 relied upon by the plaintiff, copies of which were marked by him as Ex. DW-1/P-6 to P-8. He expressed ignorance as to whether he and his family were only the Directors of the plaintiff company and in a position to control it. He was also unable to mention whether anyone else was Director during that period.


16. The plaintiff urged that all these materials, and the fact that Atna never filed any written statement, contesting the suit claim, establish the suit its claims and that the reliefs sought should be granted. The plaintiff also relies on the Award, dated 15.11.1989, (Ex. PW-2/3) and urges that since DW-1 did not deny its existence, there is no question of the Court not taking into consideration its contents, as they estop Atna and SNP Punj from contending that there is no liability. It is also urged the effect of the documents produced, certified copies of which are on the record, and are concededly part of the Registrar of Companies? records, is to amount to an admission by Atna, which at one stroke amounts to Acknowledgement of Debt, extending limitation, and also arms the court to draw a decree. Ex. PW-2/3, in its relevant particulars, reads as follows:


?XXXXXX XXXXXX XXXXXX


Whereas: Group A shall mean and include the following and their heirs, successors and assigns:


1. Shri Virendra Prakash Punj, s/o Late Pt. Kanahya lal Punj, Party of the First Part and also representing Mrs. Brigette Punj, Shri Rajinder Dorian Punj, Ms. Cornelia Punj ? and also represents any companies and firms under their control.


Group B shall mean and include the following and their heirs, successors and assigns:


2. Shri Satya Narain Prakash Punj, S/o Late Pt. Kanahya Lal Punj, Party of the Second Part and also representing Mrs. Indu Rani PUnj, Mr. Atul Prakash Punj, Mrs. Navina Punj, nee Narang, Mr. Uday Prakash Punj ;and Mrs. Mangalam Punj nee Tewari and also represents any companies and firms under their control.


XXXXXX XXXXXX XXXXXX


I, the undersigned, have heard and examined the parties and considered all allegations and counter allegations and submissions made against each other and all documents and other evidence as produced and laid before me. In order to resolve differences among the family members a negotiated family settlement agreeable to all the parties have been arrived at and contents of this negotiated settlement are as below: -


1) Group A represents -

Shri Virendra Prakash Punj, Mrs. Brigette Punj, Shri Rajinder Dorian Punj, Ms. Cornelia Punj.


2) Group B represents ?

Shri Satya Narain Prakash Punj, Mrs. Indu Rani Punj, Mr. Atul Prakash Punj, Mrs. Navina Punj nee Narang, Mr. Uday Prakash Punj and Mrs. Mangalam Punj nee Tewari.


3) Group C represents ?

Shri Ravinder Prakash Punj, Mrs. Pushpanjali Punj, Miss Malini Punj, Ms. Nandita Punj and Mr. Gaurav Punj.


4) Group D represents ?

Shri Nilinder Prakash Punj, Mrs. Gita Punj, Shri Gautam Punj, Ms. Gauri Punj and Ms. Gayatri Punj.


XXXXXX XXXXXX XXXXXX


5. As the accounts of Punj Sons Private Limited were under the control of Shri S.N.P. Punj, Managing Director, he shall get the accounts completed and audited.


XXXXXX XXXXXX XXXXXX


9. The Board will review all debit notes and credit notes issued to and by the disputed companies of the Punj Family under the arbitration and decide the reasonableness and genuineness of each transaction. In case of appeal, again the matter will be referred to Shri S.C. Mathur whose decision will be final. It is understood that it will be under the sole arbitration of Shri S.C. Mathur and not under a Court procedure. Any order given by the Arbitrator will not be a speaking order.


10. All the business matters will have to be decided with the concurrence of all the four brothers viz. the Directors of Punj Sons Private Limited.


11. Shri S.N.P. Punj will assist in getting all the realizations as he has been in control of the entire operations of the Company until now.


XXXXX XXXXXX XXXXXX


3.2 Punj Sons Private Limited ? (Construction Division)


1. Effective from 15th November, 1989, the Construction Division of Punj Sons Private Limited (carrying on business and comprising of Pipeline Division, Acoustic Division, PTB job and other jobs, Estimation Services Cell) with all assets and liabilities reflected in the Balance Sheet to be drawn up and audited as on 15th November, 1989, shall at the book values reflected therein, along with all rights, entitlements, quotas, licenses, pre-qualifications, recommendations, claims, completion certificates, tax deduction at source certificates, work in progress, and other assets, whether tangible or intangible, be vested in Punj Lloyd Private Limited, at book value. It is clarified that the loans taken by Dev Automobiles Private Ltd., Atna Engineering Private Limited and D.A. Foods Private Limited and Atna Investments (P) Ltd., from Punjstar Industries Private Limited, shall be returned to the companies in dispute in three yearly installments, beginning from 1st April, 1990, and shall not carry any interest and in case of default, 15% interest will be levied.


XXXXXX XXXXXX XXXXXX


3.14 Punjstar Industries Private Limited (Manufacturing Divisions are at Bhilai) There are 3 units in production ?


a) Resin Bonded Rockwool Manufacturing Plant.

b) Mineral Wool with Pipe Sections Manufacturing Plant.

c) Coal Tar Enamel and Primer Manufacturing Plant.


This company is awarded to Shri N.P. Punj. The existing shareholders shall transfer their shareholdings to Shri N.P. Punj or his nominees at Rs.1/- per share as per the family settlement.


XXXXXX XXXXXX XXXXXX


11. The shares held by the brothers Shri V.P. Punj, Shri S.N.P. Punj, Shri R.P. Punj and Shri N.P. Punj, and their families in any group companies of the Punj family, shall be exchanged at par, subject to exceptions mentioned elsewhere in this award. Similarly, all receivables or payables amongst the inter se companies of the Punj Group, shall be paid or received as per books. However, only the debits and credits raised inter se on each other (companies/firms) which have direct bearing on the outflow of cash, will be considered. In this matter the decision of the Arbitrator shall be final and binding on all the parties. Similarly, shares of the awarded companies to any party, shall be given by the others at par. The share scripts shall be handed over to the Arbitrator at the time of the award.


XXXXXX XXXXXX XXXXXX?


17. The defendants urge that the two documents, Ex. PW-2/1 and PW-2/2 are not acknowledgement of debts within the meaning of the expression under Section 18 of the Limitation Act, 1963, entitling Punj Star to claim extension of the limitation period prescribed, which would have been three years from the date the cheques were allegedly issued from the plaintiffs accounts. The defendants urge that the letter PW-2/2 in fact talks of share transfers for which the amounts were deemed consideration, which in turn imply that the amounts were not paid or agreed to be paid unconditionally. It is further argued that the plaintiff has been unable to prove its allegation that the second and third defendants had siphoned off amounts from its, i.e. the plaintiff?s accounts as is contended in the suit. The defendants further argue that the alleged Acknowledgement of Debt by SNP Punj and Uday Punj cannot bind Atna as they were not shareholders or its directors. It is urged further apart from relying on vague allegations, the plaintiff has not proved how Atna is liable for any acts allegedly done by SNP Punj and Uday Punj. It is lastly contended that there is no material warranting or justifying the Court to lift the corporate veil, as sought by the plaintiff.


18. On an overall conspectus of the documents on the record, as well as oral evidence, the following facts are to be noticed:


(1) SNP Punj and Uday Punj, the second and third defendants in the suit were directors of the plaintiff company till 1989. Ex. PW-5/2 is a collection of certified copies of Form 32 filed by the plaintiff with the Registrar of Companies. It reveals that these two defendants held office as its directors, as on 27.04.1987; they resigned from directorships with effect from 01.03.1990. The second defendant, in his cross examination admitted to being a director till 01.03.1990.


(2) SNP Punj the second defendant, admitted and identified copies of the cheques issued by him and the third defendant, Uday Punj, by marking them as DW-1/P1 to DW-1/P4. They correspond to the suit claim.


(3) PW-4/1 and PW-4/4, are extracts from the certified copies of the balance sheet of Atna (Ex. PW-4/1) with auditor?s report of the first defendant, as on 31.03.1991. They record an entry of unsecured loans from ?other creditors? of Atna as ` 60,68,000/-. The same amount is shown as outstanding, for the previous year ending 31.03.1990. PW-4/4 likewise records an entry of `16,08,000/- as unsecured loan payable to the plaintiff, i.e. M/s. Punj Star Industries in respect of the previous year ending 31.03.1988. This liability is shown as absolute and unconditional, by Atna.


(4) PW 4/2 and PW- 4/3 are the relevant list of Directors and shareholders for the concerned year, of Atna. They reveal that its total equity shareholding is 30 shares, of the face value of ` 100/- each, and that its directors included Ms. Preah Narang, and Shri A.K. Lakhanpal.


(5) Atna fell to the share of SNP Punj, according to the Award, Ex. PW-2/3. The award inter alia, spells out that he was in control of Punj Star, and had agreed to hand over control to the other concerned brother, including custody of the books, etc. The document also, crucially, states that:


??It is clarified that the loans taken by Dev Automobiles Private Ltd., Atna Engineering Private Limited and D.A. Foods Private Limited and Atna Investments (P) Ltd., from Punjstar Industries Private Limited, shall be returned to the companies in dispute in three yearly installments, beginning from 1st April, 1990, and shall not carry any interest and in case of default, 15% interest will be levied.?


(6) PW-5/5, PW 5/7 and PW-5/9 are vouchers, disclosing that three cheques were deposited into Atnas account, totaling ` 54,10,000/-. Atna?s account number is also disclosed, as are the cheques drawn from Punjstar?s Bank account.


(7) SNP Punj admitted to writing the letters which are relied on by Punjstar as Acknowledgement of Debt.


(8) Copies of Punjstar?s ledgers, reflecting Atna?s liabilities, were proved by PW-5.


19. From the above analysis of facts, there can be hardly any escape from the conclusion that Atna fell to the share of SNP Punj pursuant to the Award Ex. PW-2/3. The award expressly mentioned that Atna had to discharge its liabilities to the plaintiff to the extent the latter had advanced or paid amounts to it. Two sets of documents, the first being balance sheets reflecting Atna?s liabilities as on 01.03.1990 and 01.03.1991 clearly indicate that the plaintiff was unsecured creditor to the extent of ` 60,68,000/-. This document is sufficient to fasten liability upon Atna. The second and third defendants have, in this regard, disclaimed complete responsibility. Their plea is that of no connection with Atna. The certified copies of balance sheets of Atna reflecting its liabilities as on 01.03.1990 and 01.03.1991 on the one hand extend the limitation period and on the other operate as estoppel, binding it from contending to the contrary. Atna has not chosen to put forward any defence and disclose whether and if so when, its liabilities to the plaintiff were discharged. In these circumstances, the Court holds that Atna is absolutely liable to pay the plaintiff the said amount of ` 60,68,000/-. This liability can also be justified on invocation of the doctrine of indoor management, which fastens liability upon the principal ? in this case, the company, which benefits from the acts of its directors, or representatives, who hold themselves to be authorized to make binding commitments on its behalf. Atna has not forward and disclaimed responsibility for their actions. The doctrine was explained by the Allahabad High Court, in Lakshmi Ratan Cotton Mills Co. Ltd., v. J. K. Jute Mitts Co. Ltd., AIR 1957 All 311, in the following terms:


?If it is found that the transaction of loan into which the creditor is entering is not barred by the charter of the company or its articles of association, and could be entered into on behalf of the company by the person negotiating it, then he is entitled to presume that all the formalities required in connection therewith have been complied with. If the transaction in question could be authorised by the passing of a resolution, such an act is a mere formality. A bona fide creditor, in the absence of any suspicious circumstances, is entitled to presume its existence. A transaction entered into by the borrowing company under such circumstances cannot be defeated merely on the ground that no such resolution was in fact passed. The passing of such a resolution is a mere matter of indoor or internal management and its absence, under such circumstances, cannot be used to defeat the just claim of a bona fide creditor. A creditor being an outsider or a third party and an innocent stranger is entitled to proceed on the assumption of its existence ; and is not expected to know what happens within the doors that are closed to him. Where the act is not ultra vires the statute or the company such a creditor would be entitled to assume the apparent or ostensible authority of the agent to be a real or genuine one. He could assume that such a person had the power to represent the company, and if he in fact advanced the money on such assumption, he would be protected by the doctrine of internal management."


The rule had its genesis in the case of Royal Bank v. Turquand, 1856 6 E. & B. 327. In that case the Directors of the Company were authorized by the articles to borrow on bonds such sums of money, as should from time to time by a special resolution of the Company in a general meeting, be authorized to be borrowed. A bond under the seal of the company, signed by two directors and the secretary was given by the Directors to the plaintiff to secure the drawings on current account without the authority of any such resolution. Turquand sought to bind the Company on the basis of that bond. Thus the question arose whether the company was liable on that bond. The Court of Exchequer Chamber overruled all objections and held that the bond was binding on the company as Turquand was entitled to assume that the resolution of the Company in general meeting had been passed. The relevant portion of the judgment reads:


"The deed allows the directors to borrow on bond such sum or sums of money as shall from time to time, by a resolution passed at a general meeting of the company, be authorized to be borrowed and the replication shows a resolution passed at a general meeting, authorizing the directors to borrow on bond such sums for such periods and at such rates of interest as they might deem expedient, in accordance with the deed of settlement and Act of Parliament; but the resolution does not define the amount to be borrowed. That seems to me enough......We may now take for granted that the dealings with these companies are not like dealings with other partnerships, and the parties dealing with them are bound to read the statute and the deed of settlement. But they are not bound to do more. And the party here on reading the deed of settlement, would find, not a prohibition from borrowing but a permission to do so on certain conditions. Finding that the authority might be made complete by a resolution, he would have a right to infer the fact of a resolution authorizing that which on the face of the document appear to be legitimately done."


20. As far as liabilities of the other two defendants go, undoubtedly the documentary material reveals that Atna, previously a part of the Punj group of companies, fell to the share and became subject to the complete control of SNP Punj and family members which included the third defendant his son. Ex. PW-2/1 and Ex. PW-2/2 clearly reveal that these two defendants acknowledged the liability of Atna. Although they seemed to suggest no connection with the company, in his cross examination, no explanation is given or suggested by SNP Punj about the authorship of these documents and why if he had no connection with Atna, there was any need to acknowledge that liability. He clearly admitted having signed three of the cheques and identified signatures of the third defendant his son on the other one. These correspond exactly to the sum of ` 60,68,000/- disclosed by Atna in its balance sheets for the relevant years. Here too no explanation has been afforded by the second and third defendant. On an overall consideration of all the factors, this court is of the opinion that the sum of ` 60,68,000/- was given over to Atna, by the second and third defendants when they were controlling the plaintiff company as its directors -- established by Ex. PW-5/, certified copies of Form 32 filed by the plaintiff with the Registrar of Companies. The relationship between the second and third defendants is not disputed.


21. It has now been established that the second and third defendants were directors of the plaintiff company; in the award, the second defendant is assigned the responsibility of ensuring that accounts of the plaintiff company, and its affairs were handed over to the new management. He and his family members were given control of Atna. It was due to their acts that the plaintiff company was made to part with ` 60,68,000/-. A director's fiduciary duty may be spelt out in the following terms:


(a) to act in the best interests of the company;

(b) not to put himself/herself in position of conflict with the company (i.e. the no self-dealing rule); and

(c) to act for proper purposes.


In the judgment reported as Dale and Carrington Int. (Pvt.) Ltd. v. P.K. Prathapan, 2005 (12) SCC 212, the rule was stated as follows:


"15 ... The fiduciary capacity wi

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thin which the Directors have to act enjoins upon them a duty to act on behalf of a company with utmost good faith, utmost care and skill and due diligence and in the interest of the company they represent. They have a duty to make full and honest disclosure to the shareholders regarding all important matters relating to the company... This requirement flows from their duty to act in good faith and make full disclosure to the shareholders regarding affairs of a company. The acts of directors in a private limited company are required to be tested on a much finer scale in order to rule out any misuse of power for personal gains or ulterior motives." During the trial and proceedings in the suit, the first defendant did not file a suit and defend itself; the second and third defendants filed a written statement, jointly, and included the first defendant, without disclosing how they had a common cause with it. They continued with this position, till end of the trial. They have not furnished any explanation why they firstly joined with Atna, whose authorization to file the written statement is not disclosed, and secondly how they can disclaim any responsibility in its operation despite the documents on record, which clearly establish that the amounts were withdrawn from the plaintiff company and made over to Atna, in the first place. The role of each of the said defendant (SNP Punj and Uday Punj) is the same; they are therefore, jointly and severally liable for acts of misfeasance; furthermore, each of them could not have functioned without the knowledge, complicity and approval or connivance of the other. In these circumstances, they are jointly and severally liable. 22. In view of the above conclusions, issue Nos. 2, 4 and 5 are held against the defendants; they are liable, jointly and severally to the extent of ` 60,68,000/-, which is due and payable to the plaintiff. Issue No. 3 23. This issue appears to have been framed at the instance of the second and third defendants. Having regard to the materials on record, and the clear provisions of Order II Rule 9 Code of Civil Procedure, which enjoins that a suit cannot be dismissed on the ground of mis-joinder, the issue is answered in favour of the plaintiff. The suit is held to be competent. Issue No. 6 24. Ex. PW-2/3, the Award is relied on by the plaintiff to say that it is entitled to interest at 15% p.a. since that was the agreement of the parties. Now, there can be no dispute that in view of the findings on the substantive issues, at least with effect from 1-3-1990, Atna held itself responsible and liable to the plaintiff to pay ` 60,68,000/-, due and owing to it. There is no plea that sum or amounts were advanced informally, or otherwise than as a commercial transaction; Ex. PW-2/3 Award clearly states that Atna has to pay back the plaintiff these amounts. In these circumstances, the court sees no reason to deny the said rate of interest, at least from the date of filing of the suit. The issue is held in the plaintiffs favour; it is entitled to interest @ 15% p.a. on ` 60,68,000/- from the date of filing of this suit, till realization. Issue No. 7 25. In view of the foregoing discussion, and findings on Issue Nos. 2,4,5 and 6, the suit is decreed against the defendants, jointly and severally to the extent of ` 60,68,000/- with interest @ 15% p.a. on ` 60,68,000/- from the date of filing of this suit, as well as pendente lite and future interest (till realization), with costs. In addition to the taxed costs, the plaintiff is entitled to Counsels fee at ` 75,000/-.
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