1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION LONG CAUSE SUIT NO. 1878 OF 1979 LONG CAUSE SUIT NO. 1878 OF 1979 LONG CAUSE SUIT NO. 1878 OF 1979 Messrs Flowfast Engineers (India), a ) partnership firm, registered under ) the Indian Partnership Act having ) their place of business at 611, ) Dalamal Chambers, 6th floor, ) New Marine Lines, Bombay 400 002. )..Plaintiffs Versus 1. M/S. D & H Secheron Electrodes ) Pvt.Ltd., a private limited ) company incorporated in India ) under the Companies Act, 1956 ) having their registered office ) at 44-46, Industrial Estate, ) Killa Maidan, Indore 452 006 ) in State of Madhya Pradesh and ) also carrying on business in ) Bombay having their office at ) Merchant Chambers, Sir ) 2 Vithaldas Thakersey Marg, ) Bombay - 400 020. ) 2. M/S. Dalamal & Sons investment ) Co., a partnership firm carrying ) on business at Merchant Chambers,) 41, Sir Vithaldas Thakersey Marg,) Bombay 400 020. ) 3. Nari Dalamal of Bombay Indian ) Inhabitant carrying on business ) at Merchant Chambers, 41 Sir ) Vithaldas Thakersey Marg, ) Bombay 400 020. ) 4. M.D.Kripalani of Bombay Indian ) Inhabitant, Manager of 2nd ) Defendant carrying on business ) at Merchant Chambers, 41, Sir ) Vithaldas Thakersey Marg, ) Bombay 400 020. ) 5. Jhamandas H. Melwani of Bombay ) Indian Inhabitant, the Chairman ) of the 1st Defendant carrying ) on busiess at Merchant ) Chambers, Sir Vithaldas ) 3 Thackersey Marg, Bombay 400 020. )..Defendants Mr. R.C. Shah with Ms. Mili Thakkar & H.J.Engineer i/b M/s. Gordhandas & Fozdar for Plaintiffs. Mr. S.J.Thakkar with D.J.Kakalia, Ms. Bhavana Singh & Ms. Puja Jain i/b. M/s. Mulla & Mulla & Craigie Blunt & Caroe for Defendant No.1. CORAM: S.K.SHAH,J. CORAM: S.K.SHAH,J. CORAM: S.K.SHAH,J. JUDGMENT RESERVED ON: 28.1.2005 JUDGMENT RESERVED ON: 28.1.2005 JUDGMENT RESERVED ON: 28.1.2005 JUDGMENT PRONOUNCED ON 04.2.2005 JUDGMENT PRONOUNCED ON 04.2.2005 JUDGMENT PRONOUNCED ON 04.2.2005 ORAL JUDGMENT : ORAL JUDGMENT : ORAL JUDGMENT : 1. The Plaintiffs filed this suit for specific performance of the oral agreement dated 30.11.1977 for purchase of Basement-cum-godown premises as described in Exhibit "A" annexed to the Plaint. 2. The Plaintiffs are a partnership firm. They are carrying on business as manufacturers of and dealers in engineering goods. The defendantg nO.1 is a Private Limited Company. Defendant No.2 is a partnership firm. Both Defendants Nos. 1 and 2 are carrying on their business in the premises situate in Merchant Chambers, 5th Floor, Vithaldas Thakersey 4 Marg, Mumbai 400 020. The business of the Defendant No.1 Private Company is as manufacturer of Electrodes and other allied articles. The business of the Defendant No.2 partnership firm is as Financiers and Builders. The Defendant No.3 is one of the Directors of the Defendant No.1 Company and also one of the partners of the Defendant No.2 firm. The Defendant No.4 is the Manager of the Defendant No.2 firm and Defendant No.5 is one of the Directors of the Defendant No.1 Company. 3. In the year 1974, the Plaintiffs had purchased on ownership basis from the Defendant No.2 firm the Dalamal Chambers flat. Since then, the Plaintiffs are known to the partners of Defendant No.2. 4. Messrs Harishlal T. Bhatia, Manoharlal T. Bhatia and Kumari Sundari T. Bhatia are the partners of the Plaintiffs’ firm. 5. It is alleged by the Plaintiffs that somewhere in November, 1977, the Plaintiffs learnt that the Defendant No.1 Company were interested in selling the Basement-cum-Godown as described in Exhibit "A" annexed to the Plaint (hereinafter referred to as "the suit premises"). Since the Plaintiffs were interested in the suit premises, they approached the Defendant 5 No.1 through the Defendants Nos. 2, 3 and 4. The Defendants Nos. 3 and 4 expressed their willingness to sell the suit premises to the Plaintiffs on behalf of the Defendant No.1. They however, requested the Plaintiffs’ partner, Harishlal Bhatia, to meet Defendant No.5 who was the Director of the Defendant No.1 Company for the purpose of finalising the terms and conditions of the sale. Accordingly, the Plaintiffs’ partner, Harishlal Bhatia, requested the Defendants Nos. 3 and 4 to arrange a meeting with the Defendant No.5 which eventually was arranged on 30.11.1977. The meeting was held in the office of the Defendants Nos. 1 and 2. The said meeting was attended by Harishlal Bhatia and Manoharlal Bhatia on behalf of the Plaintiffs’ firm and by Defendants Nos.4, 4 and 5 and one R.T.Sharma, Accountant of the Defendant No.2 firm. At the said meeting after negotiation, agreement was concluded between the two Plaintiffs’ partners and the Defendants Nos. 3, 4 and 5 representing Defendant No.1. As per the said agreement, the Plaintiffs alleged, the Defendant No.1 Company agreed to sell the suit premises to the Plaintiffs for consideration of Rs.8,85,000/-. Rs.3,00,000/- were agreed to be paid in cash prior to the execution of the agreement and the balance amount was agreed to be paid on or before the execution of the formal agreement of sale. The Plaintiffs further 6 alleged that the Defendants Nos.3, 4 and 5 represented to the Plaintiffs that the suit premises was standing in the name of the Defendant No.1 Company in the records of the said Co-operative Society Ltd.; that the suit premises would be transferred to the Plaintiffs free from all encumbrances; that the Plaintiffs would be put in possession of the suit premises; that the Plaintiffs would be put in possession of the suit premises; that the necessary Municipal taxes, property taxes and other outgoings in respect of the suit premises would be cleared by the Defendant No.1 Company before the execution of the agreement for sale; that the Defendants Nos. 3, 4 and 5 would procure necessary "No Objection Certificate" from the said Society for the transfer of the suit premises in favour of the Plaintiffs as also to get transferred the shares of the said Society in favour of the Plaintiffs; that the Defendants Nos. 3, 4 and 4 assured that an agreement for sale of the property would be duly entered into by them on behalf of Defendant no.1 as soon as they were able to procure No Objection Certificate from the Dalamal Premises Co-operative Society Ltd. 6. The Plaintiffs further alleged that relying upon the aforesaid representations, assurances and promises, the Plaintiffs’ partners on the same day 7 i.e. 30.11.1977, paid to the Defendant No.5 a sum of Rs.2,00,000/- in cash by way of earnest money in the presence of the Defendants Nos. 3 and 4 and the said R.T.Sharma, the Accountant of Defendant No.2. The Plaintiffs therefore alleged that the deal in respect of the purchase and sale of the suit premises was completed on the aforesaid terms. The Plaintiffs further alleged that a further sum of Rs.1,00,000/- was paid by Manoharlal Bhatia, the Plaintiffs’ partner, to Defendant No.5 on 28.12.1977 in the presence of the Defendant No.4 and Mr. R.T.Sharma. 7. The Plaintiffs further alleged that in January, 1978, Defendants Nos. 3, 4 and 5 informed the Plaintiffs that they had already approached the said Co-operative Society for the purpose of getting No Objection Certificate and asked Harishlal Bhatia to pay a further sum towards the agreed consideration. Accordingly, on 3.1.1978, the Plaintiffs handed over to the Defendants Nos. 3, 4 and 5 a Bank Draft for Rs.1,00,000/-. However, the Defendants represented to the Plaintiffs that the Municipal Corporation was not agreeable to use the suit premises as godown, but they were pressing to use the suit premises for the purpose of parking. As such, the Bank Draft of Rs.1,00,000/- was no encashed. They further alleged that during the subsequent meeting, the Defendants Nos. 3, 4 and 5 8 along with their Counsel had a meeting with the Plaintiffs’ partners wherein they agreed to somehow get the permission of the B.M.C. for using the suit premises as godown. On 30.10.1978, on the demand being made by Defendant No.5, two Bank Drafts, one for Rs.75,000/- and another for Rs.2,25,000/- aggregating to Rs.3,00,000/- were handed over by Harishlal Bhatia to Defendant no.5 towards the agreed consideration. However, the Defendant No.5 fell ill and was admitted in Breach Candy Hospital for treatment and, therefore, the said two Demand Drafts were not encashed and came to be returned to the Plaintiffs. After the Defendant no.5 recovered from illness and started attending the office, the Plaintiffs’ partner, Harishlal Bhatia contacted him and requested for completing the transaction of sale. The Defendant No.5 then insisted that the Plaintiffs should pay the balance consideration of Rs.5,85,000/- immediately so that the transaction could be finalised. It is alleged that at that time, the Defendant No.5 had asked the Plaintiffs to retain the amount of Rs.3,00,000/- for clearing Municipal dues and other outgoings. However, the Plaintiffs issued six cheques of the different amounts aggregating to Rs.5,85,000/- and handed them over to the Defendant No.5. The said cheques were duly accepted by the Defendant No.5 from Harishlal Bhatia promising to complete the transaction. 9 8. The Plaintiffs however, alleged that inspite of having made payment of full consideration, the Defendant No.1 failed and neglected to carry out their part of the contract of executing the agreement of sale. Finally, the Plaintiffs addressed a letter dated 29.6.1979 addressed to the Defendant no.5 requiring him to refund the amount of Rs.3,00,000/- which were paid as earnest money. After receipt of the said letter, the Plaintiffs alleged, the Defendant No.5 called the partners of the Plaintiffs and requested to bear with him and he assured the Plaintiffs’ partners that Defendant no.1 would definitely carry out their part of the contract of selling the suit premises to the Plaintiffs. However, the Defendants failed and omitted to execute formal agreement of sale and, therefore, the Plaintiffs filed the suit for specific performance of the agreement for sale of the suit premises. In the alternative, they claimed refund of earnest money of Rs.3,00,000/- with interest and a charge to be kept on the suit premises. 9. The Defendant No.1 Company resisted the suit by the Written Statement dated 30.1.1995. While denying the entire allegations of the Plaintiffs with regard to the concluded agreement of sale of the suit premises with the Defendant No.1, they contended that 10 none of the Defendants Nos. 3 to 5 had authority to enter into such agreement on behalf of the Defendant No.1 Company which is required as per the provisions of Section 46 of the Companies Act. They further contend that the Defendant No.1 Company was owned by two families viz. the Melwani Family and the Dalamal Family and two members of each family were Directors. They contend that H.H.Melwani was the Managing Director and J.H.Melwani, Defendant No.5,was the Director representing Melwani family and the other two Directors were Nari Dalamal and Hiranand Hassamal, both directors representing the Dalamal Family. The suit premises being the property of the Defendant No.1 Company could be sold only with due authority from the Board of Directors which consisted of these four Directors. The 2nd Defendant, a firm,belonging to the Dalamal Family had no authority to enter into any contract on behalf of the Defendant No.1 Company. The Defendant No.3, who happened to be one of the Directors of the Defendant No.1 Company, had also no right or authority to enter into such transaction in the suit premises. As such, the contention of the Defendant No.1 Company is that the agreement is not binding on the Defendant No.1 Company. The 4th Defendant was only an employee of the 2nd Defendant who also did not have any legal authority to enter into such agreement. They also contend that the 5th 11 Defendant was Director of the Defendant No.1 who had also did not have authority to bind the Defendant No.1 Company. Therefore, the Defendant No.1 Company contends that it is not bound by any of the commitments if at all given by them to the Plaintiffs. 10. The Defendant No.1 Company also contended that the Company has not received any money from the Plaintiffs being part of the consideration as alleged by the Plaintiffs who have paid to the 5th Defendant and, therefore, the same cannot be recovered from the Defendant No.1. The Defendant No.1 Company specifically denied any such agreement having been entered into and the agreement having been concluded for sale of the property for the consideration of Rs.8,85,000/-. As such, they claimed dismissal of the suit. 11. The Defendant No.2 has resisted the suit by independent Written Statement dated 22.4.1980. The Defendant No.2 firm, in short, contends that it did not and could not have any privity of contract with the Plaintiffs and the Defendant No.1 Company. The alleged negotiation which took place with the Plaintiffs is also denied. They, therefore, claimed dismissal of the suit. 12 12. The Defendant No.3 resisted the suit by his independent Written Statement dated 22.4.1980. He contends that he has no knowledge of either the negotiation or the concluded agreement having been arrived at with the Plaintiffs dated 30.11.1977 as alleged by the Plaintiffs. He contends that on 30.11.1977, he was out of India and, as such, could not have attended the meeting as alleged by the Plaintiffs. He further contends that he is not owner of the suit premises and, therefore, there was no question of negotiating the suit agreement with the Plaintiffs. He also denied to have received any Bank draft being handed over to him by the Plaintiffs on 3.1.1978. As such, he claimed dismissal of the suit. 13. The Defendant No.4 has also resisted the suit by his Written Statement dated 22.4.1980. is contention, in short, is of total denial of any suit agreement having been entered into with the Plaintiffs. 14. The Defendant No.5 has expired. He has not filed any written statement. 15. In view of these pleadings, the following issues are framed against which I have recorded the findings for the reasons stated below :- 13 ISSUES FINDINGS 1. Whether plaintiffs’ firm is In the affirmative. registered under the Indian Partnership Act ? If not what is its effect ? 2. Do plaintiffs prove that In the negative. there was a concluded contract of sale of the suit property for Rs.8,85,000/- as stated in paragraph 3 of the plaint? 3. Do they prove to have paid In the negative Rs.2 lakhs on 30.11.1977 to defendant No.5 ? 4. Do they prove payment of In the negative Rs.1 lakh on 29.12.1977 and further sum of Rs.1 lakh on 3.1.1978 to defendant No.5 towards the suit transaction? 5. Do they further prove payment In the negative. of Rs.75,000/- and Rs.2,25,000/- to defendant No.5 as stated in para 6 of the plaint ? 6. Do they prove that defendants In the negative. committed breach of the contract to sell as alleged in para 13 of the plaint ? 7. Do they prove that they were In the negative. ready and willing to perform their part of the contract ? 8. Whether plaintiffs prove that In the negative. defendants No.3 to 5 were authorirized by defendant no.1 to enter into an agreement and commit various acts and therefore, the agreement is binding upon defendant No.1 ? 9. Are plaintiffs entitled to In the negative specific performance of the contract ? 14 10. If not, are they entitled to In the negative. refund of Rs.10,20,400/- and from which defendant ? 11. Are they entitled to creation In the negative. of the charge of this amount over the suit property ? 12. What decree or order ? Suit is dismissed with no order as to costs. ISSUE NO.1 :- ISSUE NO.1 :- ISSUE NO.1 :- 16. With regard to this issue, the Plaintiffs have produced the Registration Certificate showing that the Plaintiff-firm is duly registered with the Registrar of Firms. It is at Exhibit "P-1". This issue, therefore, shall have to be answered in the affirmative. ISSUE NOS.2,3,4,5 & 8 :- ISSUE NOS.2,3,4,5 & 8 :- ISSUE NOS.2,3,4,5 & 8 :- 17. I propose to discuss all these issues together as they are inter-related. 15 18. As alleged by the Plaintiffs, the contract of sale of the suit premises was oral. In this regard, the Plaintiffs have examined one of their partners, Harishlal Bhatia (PW-1) and R.T.Sharma (PW-2) who allegedly was present at the time of negotiations as also at the time of payment of earnest money of Rs.2,00,000/- on 30.11.1977 and Rs.1,00,000/- on 28th/29th November, 1977 in cash. 19. Harishlal Bhatia (PW-1) states that some time in November, 1977, they learnt about the intention of the Defendant No.1 Company to sell the suit premises. As the Plaintiffs were in need of such suit premises which is godown premises for the purpose of their business, the partners of the Plaintiffs, viz. he himself and Manoharlal approached Defendants Nos. 2, 3 and 4. As stated earlier, Defendant No.2 is a partnership firm. Defendant No.3 is the Director of the Defendant No.1 Company as well as partner of Defendant No.2 firm. Defendant No.4 is the Manager of Defendant No.2 firm. At this stage, it is to be noted that there is no dispute that the suit premises belong to the Defendant no.1 Company and the Defendant No.2 firm had no concern with the suit premises. 20. Harishlal (PW-1) further states that when he approached the Defendants Nos. 2, 3 and 4, the Defendants Nos. 3 and 4 expressed their readiness and willingness to sell the suit premises to the Plaintiff-firm. However, they 16 requested him to meet Defendant No.5, Director of the Defendant No.1 Company for the purpose of finalising the terms and conditions of the sale. He further states that as the Defendant Nos. 3 and 4 are asking to meet the defendant No.5 being the Director of the defendant No.1 for finalising the terms, he believed that the Defendant No.5 was authorised by the defendant No.1 Company for the said purpose. Then he adds in his evidence that on 30.11.1977, a meeting was held in the office of the Defendants Nos. 1 and 2 (the common office for the Company and the firm). The meeting was attended by himself, his partner, Manoharlal and the Defendants Nos. 3, 4 and 5 and R.T.Sharma (PW-2) who was then Accountant of the Defendant No.2 firm. He further states that after certain negotiations, a concluded agreement was arrived at between the two partners of the Plaintiff-firm and the Defendants Nos. 3, 4 and 5 representing the Defendants Nos. 1 and 2 wherein the Defendant No.1 agreed to sell the suit premises to the Plaintiff-firm for a consideration of Rs.8,85,000/-. He states that it was also agreed to pay an amount of Rs.3,00,000/- by way of earnest money and the rest of the consideration was agreed to be paid at the time of execution of the agreement of sale. He further states that it was agreed that the Defendants Nos. 3, 4 and 5 would obtain No Objection from the Co-operative Society for sale of the suit premises to the Plaintiffs. The Plaintiffs’ witness, R.T.Sharma (PW-2) also confirms about this agreement having been arrived at. 17 21. Harishlal further states that immediately after the agreement was arrived at, the amount of Rs.2,00,000/- was paid in cash to the Defendant No.5. He further states that the amount of Rs.1,00,000/- was paid to the defendant No.5 on 29.12.1977 in the presence of the Defendant No.4 and R.T.Sharma (PW-2). R.T.Sharma (PW-2) also confirms this version of the Plaintiffs’ witness, Harishlal (PW-1). 22. Harishlal (PW-1) further stated that the Defendant No.5 had represented to him that the Defendant No.1 Company had approached the Co-operative Society and the Chairman of the Society had agreed to issue the No Objection Certificate. Having said so, the Defendants Nos. 3, 4 and 5 demanded further sum of Rs.1,00,000/- which the Plaintiff-firm paid by way of Bank draft of Rs.1,00,000/- dated 3.1.1978, the xerox copy of which is produced on record. Subsequently, however, in February, 1978, the Defendant No.5 informed him that the suit premises was not capable of being used for the purpose of godown as under the Municipal Rules it could be used only for the purpose of parking of vehicles. However, further assurance was given by the Defendant No.5 in a meeting held in February, 1978 which was attended by the Defendants’ Counsel, Mr. Merchant, that they would convince the Municipal Corporation to allow to use the premises as godown. He further states that Defendant No.5 did not encash the Bank draft and returned the same to him saying that it will not be 18 proper for him to encash the Bank draft before getting clearance from the Municipal Corporation. He further states that in October, 1978, the Defendant No.5 contacted him and represented to him that the transfer of the premises could be made at any time and he should keep balance of consideration ready. He further states that accordingly, he issued two Bank drafts, one for Rs.75,000/- and another for Rs.2,25,000/- both dated 30.10.1978 and handed over the same to Defendant No.5. Subsequently, however, Defendant no.5 fell ill and those Bank drafts also could not be encashed and they were got cancelled by the Plaintiffs. Then it is stated by Harishlal (PW-1) in December, 1978, the Defendant No.5 started attending the office and when he contacted the Defendant no.5, the defendant no.5 told him that there were large amounts of dues payable to the Municipal Corporation on account of Municipal taxes and other charges and said that the Plaintiffs could retain the sum of Rs.3,00,000/- from the balance consideration and make payment of the remaining amount. However, they issued six cheques on different dates between 20th December 1978 and 27th December, 1978 total value of Rs.5,85,000/- equal to the balance consideration and handed them over to the Defendant No.5. The Defendant no.5 however, did not encash those cheques. He further states ultimately when he found that the Defendant No.1 Company had omitted to take any steps to complete the sale of the suit premises, he issued the notice dated 29.6.1979 demanding refund of earnest money of Rs.3,00,000/-. He states that the 19 Defendant No.1 did not reply the said notice at all. 23. The evidence of R.T.Sharma shows that he supported the evidence of Harishlal with regard to the agreement and the payment of Rs.3,00,000/- by way of earnest money. 24. As against this, the Defendants have examined Ram Narayan Baheti (DW-1), the Chartered Accountant, employed in the Defendant No.1 Company to state that the Defendant Nos. 2 to 5 did not have any authority from or on behalf of the Defendant No.1 Company to enter into an agreement of sale of the suit premises which belong to the Defendant No.1 Company. He states that no resolution either in the meting of the Board of Directors or in the Annual General Body meeting was ever passed either to sell the suit premises or to authorise the defendants Nos. 2 to 5 to sell the suit premises to the Plaintiffs. He also states that no consideration of Rs.3,00,000/- was ever received as alleged by the Plaintiffs. 25. During the course of argument, it was stated on behalf of the Plaintiffs that the Defendant No.5 has expired and no further steps in that regard have been taken. Therefore, Defendant No.5 could not be examined by the Defendants. As a matter of fact, neither Defendant No.3 nor Defendant No.4 has been examined to refute the transaction agreement. 20 26. When it is an admitted position that the suit premises belong to the Defendant No.1 Company, it is necessary to see whether the Defendants Nos.3, 4 and 5 as also the Defendant No.2 firm for that matter had any authority to enter into an agreement of sale of the suit premises belonging to the Defendant No.1 Company. Defendant No.2 is a firm. Therefore, it is not legal entity. Defendant No.4 was an employee of the Defendant No.2 firm who is not concerned with the Defendant No.1 Company at all.