IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED:-02-11-2009 CORAM: THE HONOURABLE MRS.JUSTICE PRABHA SRIDEVAN AND THE HONOURABLE MR.JUSTICE M.SATHYANARAYANAN ORIGINAL SIDE APPEAL NO.370 OF 2006 Mettur Beardsell Ltd., now known as Beardsell Ltd., by its Secretary, Greames Road, Chennai-600 006. .. Appellant/Plaintiff Versus 1.The Central Bank of India, Zonal Office, Sri Rama Buildings, 159, Greames Road, Chennai-600 006. 2.Mettur Textiles Industries Limited, (in liquidation) by Official Liquidator, "Rukmini Mills Premises" Silaiman, Madurai - 625 201. 3.Rukmini Investments Private Limited, "Rukmini Mills Premises" Silaiman, Madurai 625 201. .. Respondents/Defendants Original Side Appeal filed under Order XXXVI Rule 11 of Original Side Rules read with Clause 15 of the Letters Patent against the order of the learned Judge dated 03.03.2006 , made in C.S.No.774 of 1986. For Appellant .. Mr.R.Yashod Vardhan, Sr.Counsel for M/s. B.Ravi Raja. For Respondents .. Mr.S.Kothandaraman for R1 Mr.S.R.Sundar, for Official Liquidtor for R2. Mr.J.Harikrishnan for Mr.T.V.Sekar R3. JUDGMENT M.SATHYANARAYANAN, J The unsuccessful plaintiff is the appellant. https://hcservices.ecourts.gov.in/hcservices/ 2. The suit in C.S.No.774 of 1986 was filed by the appellant herein against the Respondents for the relief of direction, directing the Respondents/defendants to pay a sum of Rs.49,80,000/- with interest at the rate of 24% per annum on Rs.30 laks/- and for costs. 3. The facts briefly stated are as follows:- The plaintiff averred that it has been carrying on diverse business involving trading and manufacturing operations for several years and one of its activities is manufacture of textiles and thread. In the shareholders meeting held on 21.2.1977, it has been decided to form a subsidiary company under the name and style of "Mettur Textiles Private Limited" (Second Respondent/Second Defendant) to carry on textiles limited operations hitherto carried on by the plaintiffs. 4. In this regard, a deed of Partnership dated 14.12.1982 (Ex.P1) was entered into between the plaintiff and the second defendant. By an agreement dated 31.12.1982 (Ex.P2) between the plaintiff, second defendant and the third defendant, the third defendant became a partner in the place of the plaintiff with effect from 1.2.1983 which is also subject to other conditions. Subsequently, a supplemental deed of partnership dated 3.3.1983 (Ex.P3) was entered into between the plaintiff and the defendants 2 and 3. 5. The terms of the above said supplemental deed stipulate that the plaintiff shall retire from the partnership with effect from 28.2.1983 and the third defendant shall become a partner of the second defendant with effect from 1.3.1983. Pursuant to the retirement of the plaintiff, a sum of Rs.174 lakhs has become due and payable to the plaintiff and the third defendant had undertaken to pay the said sum to the plaintiff in three equal monthly instalments. 6. In terms of the above said agreements, the plaintiff had divested and sold their interest in the second defendant for a total consideration of Rs.586 lakhs with the consent and approval of plaintiff's bankers. 7. It is further averred in the plaint that the first defendant had agreed to pay a sum of Rs.90 laks/- for release of the charge on the property out of a sum of Rs.336 lakhs being the value of the fixed assets. Accordingly, the first defendant vide letter dated 10.3.1983 (Ex.P4), has informed the plaintiff that a term loan of Rs.90 laks/- had been sanctioned to the second defendant so as to enable them to take over the textile division run by the plaintiff. The first defendant in another letter dated 12.3.1983 (Ex.P5), has informed the plaintiff that they would release the above said term loan to the second defendant in three instalments after completion of https://hcservices.ecourts.gov.in/hcservices/ other formalities. Two instalments at the rate of Rs.30 laks/- each were paid to the plaintiff out of the sum of Rs.90 laks/-, by the first defendant. 8. The grievance of the plaintiff is that on the basis of the representation and promise made by the first defendant to honour their commitment regarding sanction of Rs.90 laks/-, they changed their position irreversibly and that the first defendant has also released a sum of Rs.60 lakhs in two equal instalments of Rs.30 lakhs each in favour of the plaintiff. However, the act of the first defendant in not releasing the balance amount in favour of the plaintiff as against their undertaking given under Exs.P4 and P5 is unfair and the first defendant being a "State", within the definition of Article 12 of the Constitution of India, is bound by the Doctrine of Promissory Estoppel. The defendants 2 and 3 are also jointly and severally liable to pay the above said sum of Rs.30 laks/- with interest along with the first defendant to the plaintiff. Hence, the plaintiff came forward to file the above suit. 9. The first defendant filed a written statement contending among other things that a sum of Rs.90 laks/- by way of term loan was sanctioned to the second defendant and on the request made by the 2nd defendant, the fact of sanction was informed to the plaintiff. It is further averred in the written statement that two instalments had been released on instructions from the second defendant and the balance of Rs.30 laks/- was not disbursed as the operation of the accounts on the part of the second defendant was not satisfactory and the second defendant has expressly instructed them not to make any disbursement to the plaintiff. 10. The first defendant further averred that there is no privity of contract between the plaintiff and them and consequently there is no obligation on their part to disburse the balance sum of Rs.30 laks/- to the plaintiff. It was also contended by the first defendant that the plaintiff retired from the partnership firm with effect from 28.2.1983 and sanction of loan of Rs.90 laks/- in favour of the second defendant was made on 10.3.1983 and therefore, the plea of promissory estoppel deserves no consideration. Therefore, the first defendant prayed for dismissal of the suit. 11. The second and third defendants though represented by the counsel, did not file their written statement and they were set ex parte. 12. The learned Judge on consideration of pleadings, has framed the following issues:- (i)Whether the plaintiff is entitled for a money decree for a sum of Rs.49,80,000/- with interest on Rs.30 laks/- at the rate of 24% per annum from the date of the Plaint till the date of realisation? https://hcservices.ecourts.gov.in/hcservices/ (iii) Are the Defendants are liable to pay the suit claim in terms of the Deed of Partnership dated 14.12.1982 made between the Plaintiff and the Second Defendant and the Supplemental Deed of Partnership dated 03.03.1983 made between the Plaintiff and the Defendants 2 and 3? (v) Is the first Defendant bound by its Letter of Undertaking dated 10.03.1983 given to the plaintiff? (vii) Is not the first Defendant estopped from contending that it is not liable for the suit claim in view of its assurances and promises? (ix) Are the Defendants jointly and severally liable for the suit claim? (xi) To what other reliefs the Plaintiff is entitled to? 13. In the trial, on behalf of the plaintiff, Mr.S.Ananthanarayanan, who was working as the Accounts Manager was examined as P.W.1 and Exs.P1 to P21 were marked. On the side of the first defendant Mr.S.R.Narayanan, who was working as the Chief Officer was examined as D.W.1 and Exs.D1 to D12 were marked. 14. On issues No.1 to 3, the learned Judge found that there is no tripartite agreement where the bankers had undertaken to pay a sum of Rs.174 lakhs to the plaintiff and regarding the adjustment of Rs.84 lakhs and payment of Rs.90 laks/- to the plaintiff by the second defendant, no evidence is forthcoming. The learned Judge further found that in the absence of any tripartite agreement between the plaintiff and defendants 1 and 2, the plaintiff cannot take advantage of the self-serving expressions used in Ex.P2 and P3 and cannot contend that the balance of Rs.30 laks/- is payable to them by the first defendant. The learned Judge also found that the retirement of the plaintiff from partnership firm was on 28.2.1983 but the term loan was sanctioned by the first defendant in favour of the second defendant on 10.3.1983 and hence the retirement of the plaintiff from the partnership, is no way dependent on Exs.P4 and P5. Since the contents of Ex.P4 and P5 would reveal that plaintiff was informed of the sanction of loan in favour of D2, the said letters would in no way bind the first defendant to disburse the balance sum of Rs.30 laks/- in favour of the plaintiff. 15. As regards the Ex.P21 Minutes of Consortium Banks Meeting, the learned Judge found that it was drafted by one Mr.N.J.Rathnakar of the plaintiff and he has not been examined as a witness and no signatures of the officials of the bank have been found in Ex.P21 and that only Xerox copy has been produced. Therefore, the learned Judge has answered in negative in respect of issue Nos.1 to 3. https://hcservices.ecourts.gov.in/hcservices/ 16. Regarding issue No.4, the learned Judge found that the Doctrine of Promissory Estoppel has no application to the facts of this case. It has been further found on appreciation of oral and documentary evidences that there was no alteration of the position of the plaintiff and it does not involve any detriment to them. Since there was no undertaking on the part of the first defendant to pay a sum of Rs.90 laks/- to the plaintiff, the plaintiff cannot invoke Promissory Estoppel. 17. The learned Judge on issue No.5, found that in the absence of any tripartite agreement between the plaintiff and the defendants, there is no question of joint and several liability on the part of the defendants to satisfy the plaintiff. The learned Judge also found that the second defendant is none other than the subsidiary company of the plaintiff and hence Exs.P2 and P3 appears to be stage manage arrangement primarily for the purpose of diverting the amount from the first defendant bank. Therefore, the learned Judge has answered all the issues against the plaintiff and dismissed the suit with exemplary costs of Rs.50,000/-. The plaintiff aggrieved by the dismissal of the suit, has preferred this appeal. 18. Heard the submissions of Mr.R.Yashod Vardhan, learned senior counsel appearing for the appellant and Mr.N.Kothandaraman, learned counsel appearing for the first Respondent, Mr.Srinivasan, for Official Liquidator for the 2nd Respondent and Mr.T.V.Sekar, learned counsel for R3. 18. The points for consideration are: i)Whether there is any privity of contract between the plaintiff and the defendants? ii)To what relief the appellant is entitled to? 19. It is the case of the plaintiff that a bilateral contract was in existence between them and the first defendant and the same is evidenced by Ex.P4 dated 10.3.1983 and Ex.P5 dated 12.3.1983. It is the further case of the plaintiff that only in terms of the assurance and consequent guarantee held out by the first defendant under Exs.P4 and P5, they have taken vital steps. It is also contended by the plaintiff that under Ex.P21, discussions were held between the plaintiff's bank and the first defendant on 8/9.4.1983 and it would disclose that there was a commitment made by the first defendant for disbursement of Rs.90 laks/- in their favour and non- disbursal of Rs.30 laks/- caused them grave hardship and financial difficulty. 20. Per contra, the stand of the first defendant that the loan of Rs.90 lakhs by way of term loan was sanctioned in favour of the second defendant by them and on request from the second defendant, the plaintiff was informed of the sanction of the loan under Exs.P4 https://hcservices.ecourts.gov.in/hcservices/ and P5. Exs.P4 and P5 in any event would not constitute legally enforceable undertaking regarding disbursal of the said loan to the plaintiff. There is no oral or written agreement between the first defendant and the plaintiff evidencing a binding contract for disbursement of Rs.90 lakhs directly to the plaintiff. Under Ex.D9 dated 12.9.1983, the first defendant asked the second defendant as to when they are going to avail the balance loan of Rs.30 lakhs and the said document would clearly reveal that the loan was sanctioned only in favour of the second defendant. The second defendant vide letter dated 17.1.1985 marked as Ex.D10, has informed the first defendant that they have to review the correctness of the accounts with the plaintiff and pending the same, requested the first defendant not to release the funds to the plaintiff. Therefore, the first defendant would contend that in the absence of any agreement between the plaintiff and the first defendant, it is not open to the plaintiff to contend that the first defendant has to disburse the balance loan of Rs.30 lakhs to them, as there is no privity of contract between them. It is also contended by the first defendant that they have not yielded any promise to the plaintiff to disburse a sum of Rs.30 lakhs directly to them. Therefore, it would not constitute promise. 21. P.W.1 was employed as the Accounts Manager in the services of the plaintiff and according to him, he was aware of the suit transaction between the plaintiff and the defendant. P.W.1 deposed that the second defendant was the subsidiary to the plaintiff and the third defendant agreed to arrange finance for the partnership and it has also joined as a partner along with the plaintiff sand the second defendant in terms of the agreement dated 31.12.1992 marked as Ex.P2. In terms of the agreement under Ex.P2 and P3, plaintiff retired on 28.2.1983 and the third defendant became a partner with the second defendant on and from 1.3.1983. P.W.1 further deposed that a sum of Rs.60 lakhs was disbursed to them by the first defendant but the last instalment of Rs.30 lakhs was not disbursed. When the plaintiff requested the first defendant to disburse the said amount, the first defendant sent a letter dated 22.7.1985 under Ex.P16 stating that the second defendant had instructed them not to disburse them the last instalment of Rs.30 lakhs. 22. In the cross-examination, P.W.1 deposed that he is not a witness to Exs.P1 to P3 and he was not personally aware of the transactions/negotiations between 1982 and 1983 and one N.J.Rathnakar was having personal knowledge about the said transaction. P.W.1 admitted in his cross-examination that he has gone through the records before deposing as a witness and he has not seen any undertaking from the first defendant bank in favour of the plaintiff. P.W.1 further deposed that he was aware of the sanction of the loan by the first defendant in favour of the second defendant and that he was not aware exactly as to how Exs.P4 and P5 were received by them. https://hcservices.ecourts.gov.in/hcservices/ 23. As regards Ex.P21, P.W.1 admitted that he is not a signatory to the said document and one N.J.Rathnakar who was associated with the plaintiff company has prepared the said document. It is further admitted by P.W.1 that Ex.P21 does not bear the signatures of any of the officials of the participating banks since it is an internal note not meant for circulation to other member and that Ex.P21 was prepared by N.J.Rathnakar on 8.4.1985. P.W.1 further deposed when the cross-examination that he was aware of the dispute between the plaintiff and the second defendant and in Ex.P16 - letter addressed by the first defendant to the plaintiff, the areas of disputes between the plaintiff and second defendant had been enumerated. 24. A perusal of the testimony of P.W.1 would clearly that there is no separate agreement between the plaintiff and the first defendant regarding the disbursal of term loan of Rs.90 lakhs and that he was not personally aware of the negotiations and only Mr.N.J.Rathnakar was aware of it. It is to be pointed out at this juncture that N.J.Rathnakar has not been examined as a witness. 25. D.W.1 was the Chief Officer of the first defendant and in his chief examination he deposed that the second defendant approached them seeking financial assistance in the month of December 1982 and on processing the application, term loan was sanctioned in their favour. The witness further deposed that first defendant was not aware of the details regarding the transaction between the plaintiff and defendants 2 and 3. Since the second defendant has requested them to inform the plaintiff about the sanction of term loan, they have returned Exs.P4 and P5 to the first defendant. P.W.1 further deposed that under Ex.D8, the second defendant requested them not to release the instalment of Rs.30 lakhs and since they have not received further instructions, they have not disbursed the balance sum of Rs.30 lakhs. As regards Ex.P21, P.W.1 deposed that during the course of the said meeting no discussion was made regarding the payment of Rs.90 lakhs in favour of the plaintiff and no undertaking was given to that effect. 26. In the cross-examination, D.W.1 deposed that he was not aware of the agreement dated 31.12.1982 entered into between the plaintiff and defendants 2 and 3 and in respect of agreement dated 3.3.1983 marked as Ex.P3 first defendant was not a party. D.W.1 further deposed that for taking over the textile division of the plaintiff company, the second defendant has approached them for credit facility and on complying with the formalities, term loan of Rs.90 lakhs was sanctioned in favour of the second defendant. In more than one place, D.W.1 was categorical that the term loan of Rs.90 lakhs was sanctioned only in favour of the second defendant and also denied the suggestion that the said sum is to be paid in three https://hcservices.ecourts.gov.in/hcservices/ instalments directly to the plaintiff. As regards non-disbursement of last instalment of Rs.30 lakhs, D.W.1 deposed that apart from Ex.D10 letter, the accounts of D2 were not satisfactory and therefore, the said amount was not disbursed and that they have also filed a suit against the second defendant for recovery of the disbursed loan amount. A perusal of Exs.P1 to P3 would reveal that admittedly the first defendant was not a party to the said agreements. 27. It is vehemently argued on behalf of the appellant/plaintiff that Exs.P4 and P5 sent by first defendant to the plaintiff would constitute undertaking for the disbursement of Rs.90 lakhs to them and since the last instalment of Rs.30 lakhs has not been disbursed to them, they have suffered very much financially. It is also contended that the undertaking given by the first defendant under Exs.P4 and P5 amounts to promise and therefore, they are estopped from denying the same. 28. It is also contended that the undertaking given by the first defendant in Exs.P4 and P5 has resulted in legally enforceable right and therefore, there is a privity of contract between the plaintiff and the first defendant. 29. Per contra, it is contended on behalf of the first defendant that the term loan was sanctioned only in favour of the second defendant and since they have instructed them to write to the plaintiff regarding the sanction of the loan, Exs.P4 and P5 were addressed to the plaintiff. Since the loan was sanctioned in favour of the second defendant, the first defendant can disburse the loan only on instructions from the second defendant. The second defendant has addressed the letter under Ex.D10 to defer the disbursement of balance sum of Rs.30 lakhs as they have to sort out certain differences. D.W.1 in the cross-examination, has also deposed that since the operation of the accounts on the part of the second defendant was not satisfactory, they have stopped the disbursement of balance of Rs.30 lakhs and they have also instituted a suit in this regard against the second defendant. 30. It is a settled position of law that a stranger to a consideration cannot take advantage of a contract, even it may be for his benefits. However, the said Rule is subject to certain exceptions and one of the exceptions is in respect of a case where circumstances establish that the plaintiff holds the position of a Cestui que trust in relation to the oblige. The said proposition of law has been laid down in the judgments reported in (i) AIR 1932 Mad. (DB) page 457- Akolla Suryanarayana Rao and others vs. Dwarapudi Basivireddi and others; (ii) AIR 1947 Bombay page 1690 - Shamji Bhanji and Co. vs. North Western Rly. Co.; and (iii) AIR 1949 Nagpur (DB) page 319- Gajadhar Prasad Shukul vs. Rishabkumar Mohanlal Baniya. https://hcservices.ecourts.gov.in/hcservices/ 31. In the considered opinion of this Court, the appellant/plaintiff has miserably failed to prove and establish that an agreement for the disbursal of Rs.90 lakhs directly to them, has been entered into between them and the first defendant. Admittedly, on the application made by the second defendant, the term loan of Rs.90 lakhs was sanctioned to them and on instructions only, Rs.60 lakhs was disbursed to the plaintiff under two instalments by transfer. Under Ex.D10, the second defendant has requested the first defendant not to disburse the balance sum of Rs.30 lakhs as they have to review the correctness of the accounts and the first defendant acted on the said instructions, has not disbursed the amount. D.W.1 has also offered explanation that apart from the said letter, the first defendant found that the operation of the accounts on the part of the second defendant was not satisfactory and they have also filed a suit against them for recovery of the amount. Therefore, the first defendant cannot be faulted for non-disbursal of Rs.30 lakhs. 32. In the light of the ratio laid down in the above cited decisions, unless the appellant/plaintiff establish that it holds the position of Cestui que trust in relation to the oblige, he is not entitled to sue the first defendant for non-disbursement of the last instalment of Rs.30 lakhs. 33. It is to be borne in mind that the second defendant is the subsidiary to the plaintiff and in terms of Ex.P3 supplemental deed of partnership entered into between the plaintiffs and defendants 2 and 3, the plaintiff and defendants 2 and 3, the plaintiff retired from the partnership with effect from 28.2.1983 and the third defendant became the partner in its place with effect from 1.3.1983. Therefore, the persons really aggrieved regarding the non-disbursal of Rs.30 lakhs would be the third defendant. A perusal of the plant would disclose that there are no specific averments available with regard to the liability on the part of the third defendant. The plaint averments are vague and bereft any material particulars. 34. It is brought to the knowledge of this Court by the learned counsel appearing for the Official Liquidator that the second defendant has been ordered to be wound up and the affairs are vest with the Official Liquidator. The plaintiff has also not obtained leave under Section 293 of the Companies Act to sue the second defendant. The plaintiff has not made any specific averments as regards the recovery of the suit claim against the second and third defendants and admittedly, legal notice under Ex.P19 was issued only to the first defendant. 35. Under Ex.P21, no rights would accrue to the plaintiff as it is only an internal note. In Ex.P21, no specific undertaking was given by the first defendant with regard to the disbursal of Rs.90 lakhs directly to the plaintiff. The officials of the bank who https://hcservices.ecourts.gov.in/hcservices/ participated in Ex.P21 have not subscribed their signature and it was prepared by Mr.N.J.Rathnakar, an official of the plaintiff company and for the reasons best known to the plaintiff, he has not been examined as a witness. P.W.1 has also admitted that he is not personally aware of the transaction that took place between the plaintiff, defendants 2 and 3 and he is deposing based on records. 36. The learned Judge has considered the pleadings, oral and documentary evidences in proper perspective and rightly held that the plaintiff is not entitled to any relief. 37. This Court on an independent application of mind to the entire materials available on record, is of the opinion that