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TMI Blog2008 (6) TMI 353X X X X Extracts X X X X X X X X Extracts X X X X ..... ny security. - A.S. NO. 687 OF 1988 - - - Dated:- 25-6-2008 - A.C. ARUMUGAPERUMAL ADITYAN, J. C. Seethapathy for the Appellant. Mrs. Chitra for the Respondent. JUDGMENT 1. This appeal has been directed against the decree and judgment in O.S. No. 14562 of 1996 on the file of Seventh Additional Judge, City Civil Court, Chennai. The unsuccessful defendants have preferred this appeal. 2. The averments in the plaint sans irrelevant particulars run as follows : The first defendant is a private limited company registered under the Indian Companies Act. The second defendant is the managing director of the first defendant-company. The plaintiff is the sole proprietor of Adhaye Finance and Investment. For the specific purpose of acquiring an immovable property, the first defendant had borrowed a loan of Rs. 6,00,000 from the plaintiff between the period 23-6-1987 and 20-11-1987, as detailed below: Date Borrowed Amount (Rs.) 23-6-1987 50,000 7-8-1987 2,75,000 22-8-1987 25,000 13-11-1987 20,000 18-11-1987 50,000 20-11-1987 1,80,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening of 31-10-1989, admitting the insufficiency of funds in his account. The plaintiff had also received another letter dated 1-11-1989, from the first defendant containing untenable allegations. On 7-11-1989, the plaintiff wrote a letter demanding the payment of Rs. 7,50,000 with interest at the rate of 18 per cent per annum on the said amount. The reply received from the defendant contained false and frivolous contentions. In respect of the transfer of 1,250 equity shares, the plaintiff has done everything to the effect to transfer the same in the name of the second defendant. The plaintiff is entitled to the value of the said shares being Rs. 1,25,000 and also Rs. 6,25,000 as per the memorandum of understanding. Apart from that the first defendant has borrowed on various dates a total sum of Rs. 25,000 which liability he has acknowledged and issued a cheque dated 31-10-1989, for Rs. 25,000. This cheque was also dishonoured on presentation with the bank. Defendant Nos. 1 and 2 are jointly and severally liable for the suit amount. Hence the suit. 5. Defendant Nos. 1 and 2 have filed a joint written statement contending that the suit is not maintainable either on facts or on l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er companies at the cost of the first defendant are all false and untrue. These defendants admit that the memorandum of understanding was entered into on 25-5-1989. The very idea of having a mediator with whom the cheques were left was to ensure that the terms of the memorandum of understanding were given effect to fully and the cheques were not to be handed over to the plaintiff until these defendants were satisfied that the terms of such understanding were given effect to fully. Under clause 8 of the memorandum of understanding, the plaintiff and his wife were to sign any document that may be needed to give effect to the understanding. On 30-10-1989, when K. Subramanian, called on the plaintiff to get signatures from his wife on certain company documents like the register of minutes of the board meeting and certain other documents, the plaintiff failed to obtain such signatures and thus committed breach of understanding and the plaintiff was therefore not entitled to collect the cheques. This fact was brought to the notice of the plaintiff by letter dated 29-11-1989, addressed to the plaintiff by the first defendant. These defendants are not bound to takeover the shares from the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 46 of the Companies Act which reads as follows : " Form of contracts. (1) Contracts on behalf of a company may be made as follows: ( a )a contract which, if made between private persons, would by law be required to be in writing signed by the parties to be charged therewith, may be made on behalf of the company in writing signed by any person acting under its authority, express or implied, and may in the same manner be varied or discharged; ( b )a contract which, if made between private persons, would by law be valid although made by parol only and not reduced into writing, may be made by parol on behalf of the company by any person acting under its authority, express or implied, and may in the same manner be varied or discharged. (2) A contract made according to this section shall bind the company." 11. Section 46 of the Companies Act manifest how a contract between the two persons can be entered into. Nowhere it is stated under section 46 of the Companies Act that a managing director who entered into a contract on behalf of the company is not liable for the debt incurred by the company. Further learned counsel also placed his reliance on section 434(1)( b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on on case law, the hon ble Apex Court ultimately held that there can be no estoppel against a statute and that the provisions under the Andhra Pradesh Non-agricultural Lands Assessment Act (14 of 1963) as amended Act (28 of 1974) are not ultra vires because article 285 does not apply when the property that is to be taxed is not of the Union of India but of a distinct and separate legal entity. 13. The other dictum relied on by learned counsel for the appellants in support of his contention is Tata Engg. Locomotive Co. Ltd. v. State of Bihar AIR 1965 SC 40. In the abovesaid ratio decidendi the law laid down was that the corporations and companies not being citizens cannot file a petition under article 32 of the Indian Constitution. The relevant observation in the said judgment runs as follows (head note) : "The corporation in law is equal to a natural person and has a legal entity of its own. The entity of the corporation is entirely separate from that of its shareholders; it bears its own name and has a seal of its own, its assets are separate and distinct from those of its members; it can sue and be sued exclusively for its own purpose; its creditors cannot obta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Srinivasan shall handover all the above referred documents in his possession to Sri Ravi N. Iyer (D2 herein)." 15. In the cause of action column to the plaint, the plaintiff has category-cally stated that as per the terms of the memorandum of understanding dated 25-9-1989 (exhibit A1), the defendants had issued five cheques to the value of Rs. 7.50 lakhs and also another cheque for Rs. 25,000 and subsequently, the above cheques were returned "unpaid". According to the plaintiff, the first defendant had borrowed a sum of Rs. 6,00,000 for the purpose of acquiring an immovable property for the first defendant for the purpose of diverting and promoting the same and that a sum of Rs. 3.75 lakhs remains to be paid. It is the further case of the plaintiff that plaintiff had 1,250 equity shares each to the value of Rs. 100 with the first defendant besides the plaintiff s wife had 10 equity shares each to the value of Rs. 100 with the first defendant-company and the first defendant diverted the funds of the company to the other companies controlled by the second defendant and the second defendant had also resorted to falsification of accounts and under statement of income to promote the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the decree and judgment of the learned Seventh Additional Judge, City Civil Court, Chennai in O.S. No. 14562 of 1996 need not be interfered with for the reasons stated in the memorandum of appeal. Point No. 3 is answered accordingly. 18. At this juncture, learned counsel appearing for the respondent would contend that the defendants/appellants have deposited a sum of Rs. 8,00,000 towards the suit claim in the attachment before judgment petition before this court and that the respondent was permitted to withdraw 50 per cent of the said amount and balance 50 per cent of the amount is in fixed deposit and that the respondent may be directed to withdraw the remaining 50 per cent also. The request of learned counsel for the respondent is acceded. 19. In fine, the appeal fails and the same is hereby dismissed confirming the decree and judgment of the learned Trial Judge in O.S. No. 14562 of 1996 on the file of the Seventh Additional Judge, City Civil Court, Chennai. No costs. The respondent is permitted to withdraw the balance 50 per cent of the suit amount which is lying in the fixed deposit with accrued interest without furnishing any security. - - TaxTMI - TMITax - Cor ..... 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