2012 (6) TMI 465 - HC - Companies Law

Lifting of Corporate Veil - Petition against order of Trial Court decreeing the suit of the respondent on a dishonoured cheque by dismissing the leave to defend application - dishonour of cheque issued for repayment of loan - appellant denied transaction of loan and contended that same had been issued to respondent to arrange for services of a corporate consultant - appellant- company also contended that directors/shareholders could not be made liable for the dues of the company - Held that - Trial Court has rightly held that the defence is moonshine inasmuch as admittedly there was no written agreement qua the story of appointment of corporate consultant, and it was difficult to believe that the appellants did not protest in writing to the respondent even after the services of a corporate consultant were not provided. It was also observed that the company is an alter ego of the appellants no. 2 and 3(husband- wife who own company), and on the corporate veil being lifted, it would become clear that the corporate entity was used to defraud people and not encourage trade and commerce. Hence, all the three defendants are liable to pay the cheque amount of Rs. 3 lacs jointly and severally. Also, as per Section 70 of the Contract Act, 1872, and which provision deals with quasi contract i.e. where there is no contract, it is provided that anyone who receives benefits of monies, in fact must repay back those monies. Hence, all the three defendants are liable to pay the cheque amount of Rs. 3 lacs with interest of 18% p.a jointly and severally. Trail Court s order upheld.

Summary

Issues:
Challenge to impugned judgment decreeing suit on dishonoured cheque; Defence of cheque issuance for consultancy services; Liability of appellants as shareholders of defendant company.

Analysis:
1. The respondent/plaintiff filed a suit for recovery of a loan amount of Rs. 3,00,000/- through a dishonoured cheque issued by the appellants/defendants. The Trial Court decreed the suit after dismissing the leave to defend application filed by the appellants/defendants.

2. The respondent/plaintiff claimed to have given a cash loan to the appellants/defendants in three parts, with a cheque issued in discharge of the loan. The appellants/defendants contended that the cheque was given in exchange for consultancy services promised by the respondent/plaintiff, which were not provided, leading to the cheque being wrongly presented.

3. The Trial Court rejected the defence of the appellants/defendants, citing the presumption of consideration for issuing a cheque under Section 118(a) of the Negotiable Instruments Act, 1881. The Court found the defence unsubstantiated due to the lack of a written agreement regarding consultancy services and the appellants' failure to protest or request return of the cheque.

4. The appellants/defendants argued that the respondent/plaintiff did not mention the dishonoured cheque in a previous suit for recovery of a different amount. The Court dismissed this argument, stating there was no legal requirement to include all causes of action in a single suit.

5. The Trial Court held the appellants no. 2 and 3 liable for the dues of the appellant no.1 company, lifting the corporate veil based on the alter ego doctrine. This decision was supported by the Supreme Court's ruling in Delhi Development Authority v. Skiper Construction Company (P) Ltd.

6. The Court further justified its decision by referring to Section 70 of the Contract Act, 1872, emphasizing the obligation to repay received benefits. The failure of the appellants/defendants to provide details of the shareholding of the company reinforced the Court's conclusion regarding the lifting of the corporate veil.

7. The Court raised concerns about the appellants/defendants' lack of transparency regarding another pending suit, suggesting possible malafide intentions. Despite the Trial Court's leniency in awarding interest, the appeal was dismissed, and parties were directed to bear their own costs.