2018 (2) TMI 1939 - HC - Indian Laws

Suit for recovery of principal amount - Whether the machinery supplied by the Plaintiff was of inferior quality as claimed by the Defendants? If so, what was its effect? - Whether the Plaintiff agreed to receive the amount due to the Plaintiff in instalments without interest as claimed by the Defendants? - HELD THAT - The plaintiff, on the evidence led, has proved sale and supply of machines of the total value of ₹ 1,56,57,000/- to the defendant No. 1 and sale, supply and delivery whereof is supported by 'C Form under the erstwhile Sales Tax law issued by the defendant No. 1 to the plaintiff. It is also not in dispute that the defendant No. 1 has paid only a sum of ₹ 53,07,000/- leaving the balance of ₹ 1,03,50,000/-. The Counsel for defendants No. 1 to 3 has drawn attention to the pleas taken in the written statement and on which issues aforesaid were framed but which as aforesaid are found to have been proved in favour of the plaintiff. Though the defendants took a plea of the machinery being of inferior quality and of an Agreement with the plaintiff of payment of price thereof in instalments, but have utterly failed to prove the same and the said pleas are found to be falsified from the contemporaneous conduct of issuance of cheques and confirmation of balance - the issues decided in favour of the plaintiff and against the defendants. Whether the Defendants No. 2 to 4 are jointly or severally liable to pay the amount? - HELD THAT - A company, being a juristic entity, has to necessarily act through natural persons and we are still far from the day when such juristic entities, with the assistance of Artificial Intelligence will enter into contracts without acting through natural persons. Thus, merely because a natural person has acted on behalf of a juristic entity like a company will not make such natural person personally liable for the debts of such juristic entity - decided against the plaintiff and in favour of the defendant No. 2 to 4. Quantum of interest - HELD THAT - It is however proved and not disputed that the invoices contained a clause for payment of interest at the said rate and no protest was made with respect thereto and in fact the price was sought to be paid by cheques which were dishonoured - for the pre-suit period, the plaintiff is entitled to the contractual rate of interest for the reason of the transaction between the parties being a 'commercial' one. However considering the prevalent rates of interest paid on fixed deposits in the contemporaneous time, the plaintiff is found entitled to future interest at 9% per annum - the claim of the plaintiff for interest at 24% per annum can only be w.e.f. 1st April 2012 till the date of institution of the suit. A decree is accordingly passed in favour of the plaintiff and against the defendant No. 1 only, for recovery of ₹ 1,03,50,000/- with interest at 24% per annum from 1st April, 2012 till the date of institution of the suit and at 9% per annum w.e.f. the date of institution of the suit till the date of realisation/payment - The suit, insofar as against the defendants No. 2 to 4 is dismissed.

Summary

Issues: Recovery of unpaid machinery price, quality of machinery, installment agreement, liability of directors, interest rate

Recovery of Unpaid Machinery Price:
The plaintiff filed a suit to recover the principal amount of ?1,03,50,000 for machinery supplied to the defendant. The plaintiff also claimed interest at 24% per annum from the date of the invoices. The defendants contested the suit, alleging inferior quality of machinery and an agreement for installment payment without interest. However, the court found in favor of the plaintiff as the defendants failed to prove their claims, and the plaintiff proved the supply of machinery and the outstanding balance.

Quality of Machinery and Installment Agreement:
The defendants failed to prove their claims of the machinery being of inferior quality and an agreement for installment payment without interest. The court ruled in favor of the plaintiff on these issues based on the evidence presented, including the contemporaneous conduct of the parties.

Liability of Directors:
The defendants argued that the directors of the defendant company should not be personally liable for the debts of the company. The court noted that there was no case of piercing the corporate veil pleaded or proved. It was emphasized that natural persons acting on behalf of a juristic entity like a company do not automatically become personally liable for the entity's debts. Citing legal precedents, the court decided against holding the directors personally liable.

Interest Rate:
Regarding the interest rate claimed by the plaintiff, the court found the contractual rate of 24% per annum for the pre-suit period excessive. Considering the commercial nature of the transaction, the court awarded future interest at 9% per annum. The court also considered a payment plan agreement filed by the plaintiff, ruling that interest at 24% per annum would be applicable from April 1, 2012, till the date of the suit's institution, and 9% per annum thereafter.

In conclusion, a decree was passed in favor of the plaintiff against the defendant for the recovery of the principal amount with specified interest rates. The suit against the directors was dismissed, emphasizing the distinction between the company's liabilities and the personal liabilities of its directors.