1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. SUIT NO.3357 OF 1997 M/s.Kaycee Corporation. ...Plaintiff. Vs. Indiana Dairy Sepcialities Ltd. & Ors. ...Defendants. .... Mr. S.B. Gore i/b.Mr.Manoj Dalvi for the Plaintiff. None for the Defendants. ..... CORAM : DR.D.Y.CHANDRACHUD, J. August 31, 2009. P.C. The Plaintiff is a partnership firm, registered under the Indian Partnership Act, 1932 and carries on business in textile and yarn. The First Defendant is a Company incorporated under the Companies Act, 1956 and carries on business in the manufacture of Milk Products. The Second and Third Defendants are heirs and legal representatives of one Shri T.R. Varadrajan since deceased, who was at the material time, the Chairman and Managing Director of the First Defendant. The predecessor-in-interest of the Second and Third Defendants died on 2nd March 1997 and he is alleged to have guaranteed the repayment of amounts due and payable by the First 2 Defendant to the Plaintiff. In the circumstances, according to the Plaintiff, the Second and Third Defendants are liable to discharge their liability to the extent of the estate of their predecessor-in-interest coming to their hands. 2. According to the Plaintiff, the First Defendant passed a resolution on 11th September 1996 to accept financial assistance from the Plaintiff. Pursuant thereto, the First Defendant executed an agreement for Bill Discounting Facility dated 24th September 1996 against security in the form of a pledge of shares for Rs.52 lakhs. The agreement was signed by Mr.Varadrajan acting as the Chairman and Managing Director on behalf of the First Defendant. In consideration of the grant of the Bill Discounting Facility by the Plaintiff, the securities mentioned in the schedule attached to the agreement was pledged in favour of the Plaintiff. Mr.Varadrajan executed a Power of Attorney dated 24th September 1996 authorising the Plaintiff to transfer the security pledged in their name. Mr.Varadrajan executed a letter of pledge of the same date by which five lakh shares of the First 3 Defendant were pledged in favour of the Plaintiff as security for the repayment of the amounts due and payable by the First Defendant to the Plaintiff. The aforesaid shares along with the blank transfer forms were accordingly deposited. Mr.Varadrajan also executed a personal guarantee dated 24th September 1996 to secure the due repayment of the amounts by the the First Defendant to the Plaintiff. 3. In furtherance with the agreement, the First Defendant by a letter dated 5th October 1996 forwarded a letter dated 4th October 1996 from the Share Transfer Agent to the First Defendant confirming that the shares which were pledged with the Plaintiff as security stood in the name of Mr.Varadrajan and were transferable. 4. The First Defendant availed of the Bill Discounting Facility pursuant to which the Plaintiff discounted two Bills of Exchange drawn by M/s.Aditi Enterprises and accepted by the First Defendant and paid an amount of Rs.51.7 lakhs to the drawer. The First Defendant failed to honour the bill on the due date and addressed a 4 letter dated 23rd December 1996 admitting their inability to honour the bills. Along with the letter, two cheques for bill discounting charges for a further period of ninety days were forwarded. Cheques issued by the First Defendant for the repayment of the amount of the bills respectively dated 24th December 1996 were dishonoured. 5. The First Defendant was in need of further financial assistance and accordingly passed a resolution dated 11th September 1996 to accept finance to the extent of Rs.52 lakhs from the Plaintiff. Pursuant thereto, the following documents were executed: (i) An agreement for Bill Discounting Facility dated 7th October 1996 in the amount of Rs.52 lakhs; (ii) An irrevocable Power of Attorney dated 7th October 1996; (iii) A letter of pledge dated 7th October 1996; and (iv) A personal guarantee executed by Mr.Varadrajan on 7th October 1996. In pursuance of the aforesaid agreement, the Plaintiff discounted two Bills of Exchange accepted by the First Defendant and paid an amount of Rs. 52.31 lakhs to the drawer. Cheques issued by the First Defendant on 6th January 1997 and 12th February 1997 towards the 5 repayment of the amount of the bills were dishonoured. 6. On 22nd February 1997, Mr.Varadrajan deposited three lakh shares of the First Defendant to enhance the security to the Plaintiff in respect of its outstanding dues. The said three lakh shares were handed to the Plaintiff together with the blank transfer forms on 22nd February 1997. The list of shares pledged with the Plaintiff under the first Bill Discounting Facility is annexed at Exhibit-T, while those pledged on 22nd February 1997 are annexed at Exhibit-U to the Plaint. 7. On 5th April 1997, the Plaintiff addressed a letter of demand on the First Defendant claiming an amount of Rs.1,07,87,951/-. The Plaintiff obtained knowledge of the fact that Mr.Varadrajan expired on 2nd March 1997, leaving behind the Second and Third Defendants as his heirs and legal representatives. An Advocate's notice was addressed on 21st August 1997 to the Second and Third Defendants. -8. The suit has been instituted for recovery of an amount of 6 Rs.1,21,58,075/- together with further interest on the principal sum of Rs.1,04,01,100/- together with interest. Consequential reliefs have been sought. By an order dated 21st November 1997, a Receiver was appointed in respect of the shares listed at Exhibits 'T', 'U' and 'V'. The Plaintiff was directed to hand over the shares to the Receiver and the Receiver was directed to sell the shares and to retain the sale proceeds till further orders. By a further order dated 27th April 1998, the First Defendant was directed, on the Receiver approaching the Company to split 11 lakhs shares into a marketable lot of 50 shares each and issue the necessary certificates in that regard. The Receiver was directed thereupon to proceed to sell the shares in the market and to realise best possible price and to maintain proper accounts. The Plaintiff has stated that despite the aforesaid orders, the First Defendant has not split the shares which has resulted in the Court Receiver not being able to sell the shares to recover dues of the Plaintiff. The original share certificates are reported to be with the Court Receiver. -9. The Defendants have been served with the writ of 7 summons. No Written Statement has been filed. The suit has been listed as an undefended suit for ex-parte decree. -10. The Plaintiff has filed an affidavit in lieu of the Examination-in-Chief of their partner who has verified the correctness of what is stated in the affidavit. The Plaintiff has also filed a compilation of the original documents. The affidavit contains a recital of all the material facts which have been stated in the earlier part of the judgment. The documents have been duly proved on the basis of the affidavit of evidence. In the absence of any contest, the pleadings and evidence have not been controverted or challenged. The claim has been duly proved. In the circumstances, the suit shall stand decreed in terms of prayer clause (a) to (c ) and (g) with the modification that the Plaintiff would be entitled to interest at the rate of 9% per annum on the principal sum, from the date of the suit until payment or realization; and subject to the further directions that the Second and Third Defendants shall be liable only to the extent of the estate of their predecessor in interest, Shri Varadrajan, coming to 8 their hands. .....