2021 (2) TMI 1393 - HC - Indian Laws

Summary suit for recovery of a sum along with further interest at the rate of 2 percent per month on the principal sum from the date of the suit till realization on the basis of a written contract - privity of contract between the plaintiffs and the defendant - HELD THAT - Evidently the transaction was in the nature of a fixed return on the investment @ 24 percent per annum i.e. 2 percent per month. The real nature of the transaction thus could not be camouflaged by providing that there was a guarantee of the return of the principal amount as it was invested in the Index Option Funds. It is not the case of the plaintiffs that they had registered themselves with the defendant. Nor the amount was directly invested in the name of the plaintiffs in Index Option Funds. It is imperative to note that the regulatory authorities frown upon the promise of a fixed return on the investment at an unbelievably high rate as it is fraught with the risk of default and susceptible to fraud. Nor is it the case that the defendant had invited the public deposits. In contrast the claim of the plaintiffs that the deposits were invited through M/s. Crefin India Management Private Limited is found to be unsustainable. The fact that the defendant had raised the grounds of absence of privity of contract and that no amount was deposited by the plaintiffs with the defendant in its reply to the demand notice dated 4th September 2019 assumes significance. The subsequent developments in the nature of the scrutiny of the accounts of the defendant to ascertain whether the amounts have in fact been credited into the account of the defendant indicate that there is substance in the defence of the defendant that no amount has been deposited into its account directly. A useful reference in this context can be made to a judgment of the Supreme Court in the case of State Bank of Hyderabad Vs. Rabo Bank 2015 (10) TMI 2707 - SUPREME COURT wherein in the backdrop of the defence that the drawer and drawee of the Bills had perpetrated a fraud on the defendant-Bank with the collusion of some officials of the defendant-Bank the Supreme Court granted an unconditional leave to defend the suit. The defence raised by the defendant at the first possible opportunity that there was no privity of contract between the plaintiffs and no amount was invested by the plaintiffs with the defendant and the documents which have been relied upon by the plaintiffs to buttress their case of the contract between the plaintiffs and the defendant were forged appears to be a fair and reasonable defence if not a positively good defence. Thus the defendant is entitled to an unconditional leave to defend the suit. The defendant is granted an unconditional leave to defend the suit - The summons for judgment stands dismissed.

Summary

Issues Involved:

1. Privity of contract between the plaintiffs and the defendant.
2. Liability of the defendant for the actions of its authorized representative, Mr. Ameet Savant.
3. Allegations of forgery and fraud concerning the "Welcome Letters."
4. The nature of the transaction and the regulatory framework governing such transactions.

Detailed Analysis:

1. Privity of Contract:

The primary issue revolves around whether there was a privity of contract between the plaintiffs and the defendant. The plaintiffs alleged that they invested a sum of Rs. 5,80,00,000/- with the defendant based on representations made by the defendant's business partner, leading to the issuance of "Welcome Letters" that acknowledged the investment and promised a monthly return of 2%. The defendant, however, denied any privity of contract, asserting that it never had any relationship with the plaintiffs or M/s. Crefin India Management Private Limited, through whom the plaintiffs purportedly made the deposits. The court found that the plaintiffs were not registered with the defendant, nor was the amount directly credited to the defendant's account, thus raising a triable issue regarding the existence of a contract.

2. Liability for Actions of Authorized Representative:

The plaintiffs contended that Mr. Ameet Savant, who issued the "Welcome Letters," was the authorized representative of the defendant, as evidenced by a Trading Member and Authorized Person Agreement dated 11th December 2014. This agreement stipulated that all acts of omission and commission by the authorized person would be deemed acts of the trading member, thereby imposing liability on the defendant. Conversely, the defendant argued that Mr. Savant acted beyond his authority, as he was expressly prohibited from receiving or paying money in his own name or issuing documents in his own name. The court recognized that whether Mr. Savant's actions fell within the scope of his authority constituted a triable issue.

3. Allegations of Forgery and Fraud:

The defendant claimed that the "Welcome Letters" were forged and fabricated by Mr. Ameet Savant, who was involved in fraudulent activities. The plaintiffs, however, maintained that these letters formed the basis of their contract with the defendant. The court noted that the plaintiffs' reliance on these documents to establish a contractual relationship was challenged by the defendant's assertion of forgery, thus necessitating a trial to resolve the authenticity of these documents.

4. Nature of the Transaction and Regulatory Framework:

The transaction in question involved a promise of a fixed return of 24% per annum, which the court noted was frowned upon by regulatory authorities due to the risk of default and susceptibility to fraud. The plaintiffs alleged that the defendant invited deposits through M/s. Crefin India Management Private Limited, but this claim was unsupported by documents. The court highlighted the regulatory framework that prohibits authorized persons from receiving money in their own name, underscoring the significance of the transaction's nature and the regulatory compliance issues involved.

Conclusion:

The court concluded that the defendant raised a fair and reasonable defense by contesting the privity of contract and the authenticity of the documents relied upon by the plaintiffs. Given the triable issues concerning the authority of Mr. Ameet Savant, the alleged forgery, and the nature of the transaction, the court granted the defendant an unconditional leave to defend the suit, allowing for a full trial to adjudicate these matters. The summons for judgment was dismissed, and the defendant was directed to file a written statement within six weeks.