IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD FRIDAY, THE ELEVENTH DAY OF MARCH TWO THOUSAND AND ELEVEN PRESENT THE HON’BLE SRI JUSTICE N.R.L.NAGESWARA RAO C.C.C.A.NO.62 OF 2001 Between : M/s. Gopal Rooler Floor Mills Pvt.Ltd., .... APPELLANT A N D Sri Gopal Roy Agarwal and others. …RESPONDENTS THE HON’BLE SRI JUSTICE N.R.L.NAGESWARA RAO C.C.C.A.NO.62 OF 2001 JUDGMENT: The suit was filed by the plaintiff for recovery of Rs.3,25,227.55 ps. The allegations in the plaint goes to show that the plaintiff company is a private limited Company and originally it was managed by defendant Nos.1 and 2 as contractors. The Company has obtained a loan from Andhra Pradesh State Financial Corporation and A.P.Mahesh Cooperative Bank. The plaintiff company was having huge liabilities and accordingly they sold the entire shares in favour of R.N.Gupta, the present Director and his group. The written agreement was also executed on 03.08.1985 and subsequently on 20.03.1986. As per the agreement, the defendants represented that the liabilities are Rs.35,00,000/- and if the liabilities exceeds Rs.35,00,000/- the defendants shall reimburse the claim. In fact, the defendants played fraud and cheated R.N.Gupta in the transactions. It is further stated in the plaint that at the time of borrowing loan from the State Financial Corporation, there was an agreement between the plaintiff and the State Financial Corporation that they shall not pay any interest in excess of 15% per annum on unsecured loan and no interest shall be paid on such account, if the Corporation account is irregular. The Plaintiff Company during the relevant period when it was managed by defendant Nos.1 and 2 was running in losses and the loan accounts was also irregular with the State Financial Corporation. This fact is established from the letter, dated 15.06.1984 addressed by defendant Nos.1 and 2 to Andhra Pradesh State Financial Corporation wherein the defendant sought reschedulement of the loan account. In spite of the losses and irregularity of the loan account, defendant Nos.1 and 2 paid interest to defendant No.3. Defendant No.3 has received an amount of interest to the extent of Rs.3,25,227.55. The defendant Nos.1 and 2 by making payment of interest to defendant No.3 has violated the conditions of the A.P.State Financial Corporation and it is contrary to the agreed terms. The alleged payments were made by them are only for personal gains. The plaintiff company suffered financial losses due to the misdeeds of defendant Nos.1 and 2. Defendant No.3 is none other than the wife of defendant No.2. The alleged amount paid by defendant Nos.1 and 2 to defendant No.3 on behalf of the plaintiff company is unauthorized and illegal. Defendant Nos. 1 and 2 have misused the power during the relevant period and paid the amounts to defendant No.3 only to defraud the plaintiff company. The alleged payment is neither permissible nor valid under law. The alleged payment made by defendant Nos.1 and 2 to defendant No.3 is wrongful and with an intention to defraud the plaintiff Company. The following payments were made by defendant Nos.1 and 2 to defendant No.3 as under: Rs.15,137-00, dated 30.09.1981 Rs.64,520.00, dated 20.09.1982 Rs.74,198.00, dated 30.09.1983 Rs.85,432.00, dated 30.09.1984 Rs.85,940.00, dated 30.09.1985 Therefore, the suit was filed for recovery of alleged payments and interest to the defendants is illegal. 2. Defendant No.1 filed written statement, which was adopted by other defendants. The plaintiff company has no lacus standi to question the accounts prior to the agreement. The stipulation if A.P.S.F.C. is only with regard to payment of interest rate and it is also a temporary one. It is further stated that defendant Nos.1 and 2 on the one hand along with certain other persons had entered into an agreement with Sri R.N.Gupta, who has verified the plaint allegedly in his capacity as the Managing Director. This agreement was initially entered upon on 0308.1985. The agreement envisaged the immediate transfer of the management of the plaintiff Company to R.N.Gupta and others equally for a total consideration of Rs.5,50,950/- on 01.08.1985 itself the entire management of the plaintiff Company had been handed over along with all the books of account and the various other assets of the Company. It is also stated that the entire responsibility for the transactions that have taken place after 01.08.1985 must be shouldered by Sri R.N.Gupta and his associates and no part of the blame can be shifted to the defendants. The accounts were verified and checked by the date of the agreement by the plaintiff company with defendant Nos.1 and 2. There were no mis- representation or cheating by the defendants. Defendant no.3 will be entitled to interest. Further more, the interest was paid after R.N.Gupta became incharge of the management. The suit is barred by time. Therefore, the defendants pleaded for dismissal of the suit. 3. On the basis of above pleadings, the following issues have been framed for trial by the trial Court. “1. Whether the plaintiff has a cause of action? 2. Whether the plaintiff company can espouse the cause of A.P.State Finance Corporation, based upon a stipulation whicih was for the exclusive benefit of A.P.S.F.C.? 3. Whether any interest was paid in contravention of terms with APSFC, as alleged, and if so whether plaintiff is entitled to sue? 4. Whether the defendants were bound to lend monies to the plaintiff without interest? 5. Whether the suit is barred by limitation? 6. Whether the plaintiff is entitled to recover the suit amount? 7. To what relief?” 4. On behalf of plaintiff company, the present Director of the plaintiff’s company, Sri R.N.Gupta, was examined himself was P.W.1 and got Exs.A.1 to A.6 were marked. Defendant Nos.1 and 2 were examined themselves as Dws.1 and 2, but no documents were marked. 5. After considering the evidence on record, the learned Senior Civil Judge dismissed the suit of the plaintiff and aggrieved by the said judgment and decree, the present appeal is filed. 6. The points that arises for consideration are: 1) Whether the plaintiff is entitled for suit amount? 2) Whether the judgment and decree passed by the learned Senior Civil Judge, is legal and sustainable. 7. POINTS: There is no dispute about the fact that originally the plaintiff company was managed by defendant nos.1 and 2 and subsequently R.N.Gupta and others have purchased the same and become the sharers. According to the case of the plaintiff, the agreement for transfer of business was entered on 01.08.1985, and it was concluded on 20.03.1986. Sri R.N.Gupta, was examined himself as P.W.1. His chief examination does not disclose any action of cheating or misrepresentation by the defendants. He admits that in the month of March, 1986 he has taken charge of the affairs of management and account books of the plaintiff company. As against his evidence, the evidence of D.W.1 who is defendant No.1 goes to show that the account books were handed over to the plaintiff in the year 1985, after they were audited. The plaintiff never objected the correctness of the accounts. The evidence of D.W.2 is also to the same effect. The claim in the suit relates to payments made to defendant No.3. There is no dispute about the fact that the money was advanced by defendant No.3 for the purpose of facilitating the loan from the said financial corporation. 8. The contention of the plaintiff is that under Ex.A.1 the conditions were imposed by APSFC, while granting the loan and placed reliance on Clause 14 (a &b). According to the plaintiff, the amount should not have been paid to defendant No.3, if the accounts are irregular and the fact that the accounts are irregular, is sought to be proved from Ex.A.2. Therefore, it is the contention of the plaintiff that these facts were not known to the plaintiff and the plaintiff was mislead. The payments were against Clause 14(a) of Ex.A.1. The lower Court rightly did not agree with the contentions. Clause No.14 has got two sub clauses (a) and (b). Appeal Suit per Clause 14(a) of terms and conditions, interest shall not exceed at 15% P.A., on unsecured loans. Appeal Suit per Clause 14(b) no interest shall be paid on unsecured accounts, if the corporation account is irregular. The scope of both the clauses is quite different. So far as Clause (a) is concerned, the repayment shall not be made till the subsidy is received. The fact that the subsidy is received is not in dispute. Clause (a) does not attract to the position of irregular accounts of the company. Clause (b) clearly refers to a particular sum of Rs.6000/- and the condition thereof. Therefore, clauses (a) &(b) are independent and if really the similar conditions are to be applied, there is no reason to bifurcate and quantify the amount separately. Evidently, the payments made to defendant no.3 are under Clause (a) only. Even otherwise, when the fact that defendant No.3 has advanced the money to the plaintiff is not disputed the agreement under Ex.A.1 cannot deprive her right to receive the money due to her. It is not as though P.W.1 has not gone through the accounts of the company. The liabilities were fixed, the creditors are said to have verified the accounts. Any prudent businessman would have definitely verified the correctness or incorrectness of the payments and accounts. 9. Having received the accounts books, there is no reason as to why he has not objected for the payments at the earlier point of time. The contract entered into between the plaintiff and defendant Nos.1 and 2 is not placed on record to show as to whether P.W.1 was really cheated. The payments which are disputed by the plaintiff are long prior to his taking charge of the management and purchasing the shares in the company. In fact, by the date of filing of the suit, most of the claims are barred by time. As rightly observed by the lower Court, there is no reason as to why the plaintiff has not filed the account books. The contention of the learned counsel for the appellant that the defendants admitted the payments is of no consequence when the defendants claim that the audited account books were given and P.W.1 has verified the same. If these payments were shown in the account books and have missed, the attention of the plaintiff it is a different matter. Therefore, it cannot be held that the plaintiff or P.W.1 was cheated or there was any suppression of the material facts. There is absolutely no violation of the obligations with APSFC and Clause 14 will not come to the benefit of the plaintiff. Ex.A.2 is only a request for regularization of the installments and it does not mean that the affairs of the company or the accounts are irregular. 10. Learned counsel for the appellant relied on a decision reported in Rakurti Manikyam V Medidi Satyanarayana[1], which has absolutely no application to the facts of the present case. The payment of money to defendant No.3 is not against public policy and it was amount due to her and the contractual obligations between the plaintiff and APSFC are only between them and they are not statutory violations to invoke Section 23 of the Contract Act. Therefore, there are absolutely no merits in this appeal and it is liable for dismissal. 11. Accordingly, the C.C.C.A. is dismissed with costs. ____________________________ N.R.L.NAGESWARA RAO, J 11th MARCH, 2010. YVL [1] AIR 1972 Andhra Pradesh 367