2006 (3) TMI 329 - HC - Companies Law

Summary

Issues Involved:
1. Misjoinder of parties.
2. Personal liability of defendant Nos. 2 to 4.
3. Rate of interest on the deposit.
4. Relief.

Issue-wise Detailed Analysis:

Issue No. 1: Misjoinder of Parties
The defendants argued that the suit was bad for misjoinder of parties due to the inclusion of defendant No. 4, who was neither a shareholder nor a director of defendant No. 1 company. The burden of proof lay on the defendants. The court noted that defendant No. 4 had approached the plaintiff and signed a confirmation letter, albeit not as a director. The court concluded that the suit could not be deemed bad for misjoinder of parties, even if the plaintiff did not ultimately succeed against defendant No. 4. Thus, the issue was resolved in favor of the plaintiff.

Issue No. 2: Personal Liability of Defendant Nos. 2 to 4
The plaintiff sought to hold defendant Nos. 2 to 4 personally liable for the amount advanced to defendant No. 1. Defendant Nos. 2 and 3 were directors, while defendant No. 4 was the husband of defendant No. 3. The court found no personal liability for defendant No. 4, as he was not a party to the transaction and had no locus in defendant No. 1 company. Similarly, defendant No. 3, a housewife with minimal involvement in the company, could not be held liable by piercing the corporate veil. However, the court held defendant No. 2 personally liable, noting that defendant No. 1 company was merely a front for defendant No. 2's business activities. The court emphasized the need to lift the corporate veil to prevent fraud and improper conduct, referencing the Supreme Court's judgments in *Singer India Ltd. v. Chander Mohan Chadha* and *Subra Mukherjee v. Bharat Coking Coal Ltd.*. Thus, the issue was resolved in favor of the plaintiff, holding defendant No. 2 personally liable along with defendant No. 1.

Issue No. 3: Rate of Interest
The rate of interest was not disputed, as defendant No. 2 admitted in cross-examination that the agreed rate was 18% per annum. The court, considering the declining interest rates over time, awarded pendente lite interest at 15% per annum and future interest at 12% per annum. Thus, the issue was resolved in favor of the plaintiff.

Relief
The court decreed a sum of Rs. 21,00,650 along with simple interest at 15% per annum from the date of deposit (22-11-1996) till the date of decree, and at 12% per annum from the date of decree till realization on the principal amount of Rs. 15 lakhs, against defendant Nos. 1 and 2 jointly and severally. The plaintiff was also entitled to costs. The decree-sheet was ordered to be drawn accordingly.