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2016 (5) TMI 1606 - BOMBAY HIGH COURTRejection of plaint for want of a cause of action - averments in the plaint indicate that this is a composite suit where the plaintiff has sought reliefs of recovery of the money claimed against the defendants on contract as also by way of damages being a liability under the torts - Order 7 Rule 11 read with Order 1 Rule 10(2) of the Code of Civil Procedure - It is the case of the Plaintiff that there were defaults committed on the plaintiff's exchange by Defendant No. 1 and the same have occurred with the active participation, knowledge and connivance between the defendants. HELD THAT:- A holistic reading of the plaint would demonstrate that the plaintiff has impleaded defendant Nos. 14 and 15 who were directors and shareholders of defendant No. 4 so as to seek a relief against these defendants. The plaintiffs have made averments in the plaint that at the relevant time defendant Nos. 14 and 15 were in-charge and responsible for the affairs of defendant No. 4 and as such they were also liable to jointly and/or severally pay amounts due from defendant Nos. 1 to 4 to the plaintiff which was in fact the moneys of the counter-parties dealing on the exchange as set out in para 7 (zz) of the plaint. It is pertinent that the plaintiff in para 7 (zz) of the plaint has made categorical averments that defendant Nos. 1 to 4 in collusion with erstwhile managing director of the plaintiff and some of the managerial staff who directly reported to him, have orchestrated and played a fraud on the plaintiff and counter parties to the outstanding trades, by seeking to represent and assure that the commodities held thereunder have been duly deposited in warehouses designated by the plaintiff which representations were false to their own knowledge and which were deliberately and with an intent to defraud the plaintiff and counter parties and have thereby caused the counter-parties to part their moneys and enter into outstanding trades on the basis of such fraudulent representations and assurances and further have compounded the fraud so played by refusing an access to the designated warehouses for parties of accepting commodities that were purportedly deposited and/or taken possession thereof for the purpose of sale and realization of the amounts due from defendant Nos. 1 to 4 under outstanding trades. The plaintiff have stated that defendant Nos. 1 to 4 in connivance with defendant Nos. 5 to 16 would deal with the assets in their control and possession and therefore, exhaust monies and/or assets in such a manner to defeat the claim of plaintiff's exchange. It is stated that defendant Nos. 5 to 16 as Directors/shareholders are in effective control of defendant Nos. 1 to 4 and are therefore, in-charge of day-to-day affairs of defendant Nos. 1 to 4 and that enquiry of the Economic Offences wing clearly indicates that persons in charge of defendant Nos. 1 to 4 have utilized their monies for ulterior motives and/or are seeking to defeat and defraud the claim of the plaintiffs. This was borne out by the fact that the Economic Offences wing had arrested Mr. Surendra Gupta Managing Director of defendant No. 1. From the reading of the plaint, thus it is borne out that although a contract was between the plaintiff and defendant No. 1, defendant Nos. 2 to 4 had also a role to play in the transactions being related companies of defendant No. 1. The defendant Nos. 2 to 4 are largely controlled by the same management. The defendant No. 1 admittedly had executed various trades in commodities for itself and on behalf of its clients including defendant Nos. 2 to 4 on the plaintiff's exchange - The specific allegation is that defendant Nos. 1 to 16 had already disposed/siphoned/shifted off the commodities located in the warehouses whereby committed a grave breach of trust and thereby willfully defaulted towards its obligations on the plaintiff 's exchange. The plaintiff have further stated that this large scale defaults and fraud was also a subject matter of investigation of Economic Offences wing (EOW). Articles appeared in newspapers on this investigation of the EOW which further high-lighted that defendant Nos. 1 to 4 and their management namely defendant Nos. 5 to 16 were responsible for siphoning the amount outstanding to the plaintiff. The case of the plaintiff that these acts of defendants committing fraud on the plaintiff's exchange could not have occurred without the knowledge and active participation of the defendants. The present case is not a case which merely rests on the contractual terms but according to the plaintiffs, it is a collusion fraud and the defendants becoming beneficiaries of such acts. It is for these reasons, the normal role of a Director in the normal course, as canvassed on behalf of the defendant Nos. 14 and 15/Appellant would not become applicable in the facts of the present case. In considering such pleas, the facts and circumstances as borne out in the pleadings in each case are required to be considered so as to determine as to whether any cause of action is made out or otherwise before exercising power as conferred under Order 7 Rule 11(a) of C.P.C. The Appellants reliance on the decision of the Supreme Court in the case of S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla & anr) [2005 (9) TMI 304 - SUPREME COURT] is in support of their submission that merely because the Appellants were Directors of Defendant No. 4 Company, there cannot be any monetary liability on the Directors and the liability would be of the company. The Supreme court observed that there is no universal rule that a Director of a company would be in-charge of its day-to-day affairs. However, the Supreme Court at the same time observed that as to what was the role of the Director of a Company is a question of fact depending on the peculiar facts in each case. This decision arose out of the proceedings initiated under sections 141, 138 of the Negotiable Instruments Act, 1881 and in that context, the Supreme Court had made these observations that to fasten a criminal liability a specific case should be spelt out in the complaint against the person who has sought to be made liable. Parameters of the pleadings in a criminal complaint case cannot be made applicable to the facts of the present case where the issue is under Order 7 Rule 11(a) and Order 1 Rule 10(2) of the Code of Civil Procedure. The plaint in the present case contains a statement of all the material circumstances constituting fraud. It is trite law that an application under Order 7 Rule 11 read with Order 1 Rule 10 (2) can be moved at any stage of the suit - the appeal lacks merit and is rejected.
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