Case: Gopal Shrinivasan Vs. National Spot Exchange Limited &amp; Others

In the legal position as a Company stands, the Directors of the Company would have no fiduciary or contractual duty towards a third party who deals with the company. However, as observed by us above,the present case is not a case which merely rests on the contractual terms but according to the plaintiffs, it is a collusion fraud and the defendants becoming beneficiaries of such acts. It is for these reasons, the normal role of a Director in the normal course, as canvassed on behalf of the defendant nos.14 and 15/Appellant would not become applicable in the facts of the present case. In considering such pleas, the facts and circumstances as borne out in the pleadings in each case are required to be considered so as to determine as to whether any cause of action is made out or otherwise before exercising power as conferred under Order 7 Rule 11(a) of C.P.C.45. The Appellants reliance on the decision of the Supreme Court in the case of S.M.S. Pharmaceuticals Ltd. vs Neeta Bhalla & anr., (2005) 8 SCC 89 , is in support of their submission that merely because the Appellants were Directors of Defendant no.4 Company, there cannot be any monetary liability on the Directors and the liability would be of the company. The Supreme court observed that there is no universal rule that a Director of a company would be in-charge of its day-to-day affairs. However, the Supreme Court at the same time observed that as to what was the role of the Director of a Company is a question of fact depending on the peculiar facts in each case. This decision arose out of the proceedings initiated under sections 141, 138 of the Negotiable Instruments Act, 1881 and in that context, the Supreme Court had made these observations that to fasten a criminal liability a specific case should be spelt out in the complaint against the person who has sought to be made liable. Parameters of the pleadings in a criminal complaint case cannot be made applicable to the facts of the present case where the issue is under Order 7 Rule 11(a) and Order 1 Rule 10(2) of the Code of Civil Procedure.46. In the case of Mukesh Hans (supra) the learned Single Judge of the Delhi High Court was considering a case arising out of the decision of the trial Court decreeing a summary Suit against the Directors of a company incorporated under the Companies Act. The Company had failed to redeem the convertible debentures issued to the plaintiffs. The decision to issue these debentures was of the Board of Directors of the Company through whom the Company was acting. In these circumstances, the Court held that the directors cannot be held to be responsible when there was no assertion in the plaint that the Directors had undertaken to make payment to the plaintiffs of the loan amount on behalf of the company. There was no case made out for piercing of the corporate veil. Further if fraud was to be made the basis of the decree when the plaint did not have sufficient particulars in that regard. These being the facts this decision would not be applicable as in the present case there are allegations of fraud and connivance. The facts are peculiar as seen from the plaint. The Court cannot in applying the principles under Order 7 Rule 11(a) and Order 6 Rule 4, be unmindful of the enormity and the complexity of the cause as reflected in the plaint. This would not permit defendant nos.14 and 15 to justify their case under Order 7 Rule 11 to rely on this decision of the learned Single Judge of the Delhi High Court.47. In this context, the reliance on behalf of the learned Counsel for the Plaintiff on the decision of the learned Single Judge of the Delhi High Court in the case of "Deepak Ansal Vs. Ansal Properties and Industries Ltd. & Anr." (supra) and also the decision of the learned Single Judge of this Court in "Clarinda DSouza Vs. Mccann Erickson India Ltd." (supra) is well founded inasmuch as the Court would be required to consider all the averments in the plaint in relation to the reliefs as prayed for in the suit. In the present case as we have noted above there are sufficient averments for us to conclude that interference under the powers of the Court under Order 7 Rule 11(a) read with Order 1 Rule 10(2) is not warranted at this stage.48. In view of our above observations, the reliance in the decision of "Church of Christ Charitable Trust and Educational Charitable Society Vs. Ponnoamman Educational Trust, (2012)8 SCC 706 " would also not assist the Appellants. We are in complete agreement with the contentions as urged on behalf of the Plaintiff/Respondent No.1 that the plaint has made out a cause of action against defendants Nos.14 and 15. The reliance on the part of the Plaintiff on the decision of the Supreme Court in the case "Sopan vs Assistant Charity Commissioner" (supra) in support of the proposition that the intention of the party concerned is to be gathered primarily from its tenor and terms of the pleadings taken as a whole and no pedantic approach should be adopted to defeat justice on hair-spitting technicalities, is well founded.49. We may thus observe that the plaint in the present case contains a statement of all the material circumstances constituting fraud. It is trite law that an application under Order 7 Rule 11 read with Order 1 Rule 10(2) can be moved at any stage of the suit. We are not persuaded to form an opinion at this stage that the averments made in the plaint are thus not sufficient for the purpose of seeking relief as claimed in the suit against Defendant nos.14 and 15. It also cannot be overlooked that some facts are within the special knowledge of these defendants. These facts cannot be expected to be pleaded by the Plaintiffs.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]23. Having perused the plaint, we have noted above the relevant averments in the context of the issues as arising in the present appeal. The averments in the plaint indicate that this is a composite suit where the plaintiff has sought reliefs of recovery of the money claimed against the defendants on contract as also by way of damages being a liability under the torts. This is clear from several averments of connivance between the defendants and the joint and several liability arising for payment as claimed by the Plaintiffs in making the suit claim.41. Thus, the approach of the Appellants/defendants in reading of the plaint, in our view, is not correct. As the pleadings are not to be strictly interpreted in the manner in which the each and every allegations is brought out in the plaint, what is necessary is to plead all material and relevant facts on which the case of the Plaintiff would stand. Also in Ramswaroop Gupta Vs. Bishun NarayanAnr., AIR 1987 SC 1242  " (Read) their Lordships have observed that the pleadings should receive a liberal construction, no pedantic approach should be adopted to defeat justice ontechnicalities. It is held that whenever the question about lack of pleadings is raised, the enquiry should not be so much about the form of the pleadings but the endeavour of the Court should be to ascertain the substance of the pleadings. In ascertaining whether the plaint shows cause of action, the Court is not required to elaborate the inquiry in the doubtful or complicated question of law and fact. The endeavour of the Court would be to ascertain whether on the allegations a cause of action is shown and so long as the plaint discloses the same cause of action, and so raises a question, fit to be decided by a Judge. Order 7 Rule 11(a) of C.P.C. though would confer a power on the Court to reject a plaint on failure on the part of the Plaintiff to disclose a cause of action, but such power should not be exercised when averments made in the plaint and the documents upon which the reliance has been placed would disclose a cause of action.42. As regards the contention as urged on behalf of defendant nos.14 and 15 that there is no cause of action against Defendant Nos.14 and 15, inasmuch as this suit is based on a contract between the plaintiff and Defendant Nos.1 and that the relief which is being sought against Defendant Nos.14 and 15 is on tort and that such a relief cannot be claimed against Defendant Nos.14 and 15 in a suit on the basis of a contract. This submission on behalf of the Appellants is not well founded. In our view, the suit is properly framed and there is noof causes of action. On a careful reading of the plaint what we may note that the suit clearly falls within the provisions of Order 1 Rule 3 of C.P.C. as the reliefs arise out of a case of a breach of the contract as against Defendant No.1 and in tort against the other defendants which right to relief was available to the plaintiffs. Order 1 Rule 3 is not confined to joinder of parties above but would also encompass joinder of causes of action. A conjoint reading of Order 1 Rule 3 and Order 2 Rule 3 of C.P.C. would indicate that it is permissible to join different causes of action against the different defendants in one suit. A holistic reading of the plaint in the present case indicate that the plaintiff has sought reliefs against the defendants which arise out of the transaction which would involve not only Defendant Nos.1 to 4 but also the other defendants which includes Defendant Nos.14 and 15 and accordingly, they can be joined, jointly and/or severally in the alternative in one and the same suit. The requirement of Order 1 Rule 3, therefore, would stand satisfied read with the provisions of Order 2 Rule 3 which would permit joinder of causes of action. It was, therefore, permissible for Plaintiffs to join causes of action on the plea of breach of contract which is against Defendant No.1 In taking this view, we are also supported by the decision of the Division Bench of Calcutta High Court in the case "Shew Narayan Singh Vs. Brahmanand SinghOrs., (AIR 1950 Calcutta 479)" in which their Lordships have observed thus:18.The last argument on behalf of the petitioner may be stated thus. The cause of action against the original defendant is based on contract while the cause of action against the other defendants is based on tort. Causes of action so differently based cannot be joined. I am not prepared to accept this view. There is nothing in the provisions of the Code of Civil Procedure which supports it. As pointed out above the Code permits a joinder of different causes of action against different defendants. The fact that so far as the different defendants are concerned, their liability arises out of their different legal relationships with the plaintiff would not, in my opinion, bar this suit and drive the plaintiff to institute separate suits. Order 1 R.3 and O.2 R.4 are directed towards avoiding multiplicity of litigation. What would be the result of giving effect to the view propounded / The plaintiff would first have to institute a suit, against defendant 1 alone and establish a breach of contract. If he succeeded in so doing, he would then have to institute another suit against defendant 1 and the added defendants and again establish, first, the breach of the contract because the other defendants not being parties to first suit would not be bound by any decision arrived at therein; he would also have to establish conspiracy. It may be that in the second suit the added defendants may succeed in showing that there was no breach of contract. This would lead to conflicting decision on the same issue. It is to avoid such anomalies and inconsistencies that the Code has provided that one suit is permissible.It is true that the claim against defendant 1 is based on the breach of a contractual right while the claim against the other defendants is based on the breach of a common law right, but the right to relief is available in respect of both sets of defendants because the contractual right has been infringed. If it had not been infringed no question of tort would arise. In such a case one suit against all is in my opinion permissible. This view has been taken by a Special Bench of the High Court at Rangoon in the case of P.B.Boss V. M.B.N. Chettyar Fir, AIR (25) 1938 Rang 185 at p.188: (1938 Rang LJ 303 S.B.) Dankley,J. Observes :"The learned Judge appears to have thought that there was aof defendants in the original suit, and that a decree based on a breach of contract against one defendant and a decree of damages in tort against another defendant cannot be made in the same suit. With the greatest respect, this is a misconception of the law. There was noof defendants in this case; the provisions of O.1 R.3, Civil P.C., cover the joinder of the three defendants in the suit in the Township Court. There is no reason why a decree for damages for breach of contract against one defendant and a decree for damages in tort against another defendant should not be pased in the same action; in R.T.Grant V. Australian Knitting Mills Ltd., (1936)AC 85 : (AIR (23)1936 PC 34) the Privy Council madea decree against the retailer of the underwear for breach of contract and against the manufacturer of the underwear in tort."The Privy Council decision is R.T. Grant V. Australian Knitting Mills Ltd., and it is also reported in AIR (23) 1936 PC 34. The Privy Council upheld a decision of the Australian Court awarding damages in the same suit against a retailer for breach of contrast and against the manufacturer for the negligence of tort. I would refer to p.39 of the report where the Lordship said:"The liability of each respondent depends on a different cause of action though it is for the same damage. It is not claimed that the appellant should recover his damage twice over."The claim against both retailer and manufacturer was upheld.This principle would apply to the present case.""19. I would also refer to the case of Frankenburg V. Great Horseless Carriage Co. (1900)1 QB 504 at p.509: (69 LJ QB 147) where the Court of Appeal refused to give effect to a similar technical objection. They said:"In substance the shareholder had one grievance. Call its cause of action or what you like, and in substance he has cue complaint and all the persons he sues have, according to him been guilty of conduct which gives him a right to relief in respect of that one thing which they have done, namely, the issuing of a prospectus." The position here is the same. The plaintiff has one grievance viz. That the contract has been broken and he alleges that all the defendants have joined or conspired together in causing this breach. I can see no reason why one suit against all should not be allowed."43. Further in this context on behalf of the Appellants the reliance on the decision in Rajkot Municipal Corporation vs Manjulaben Jayantilal NakumOrs. (1997) 9 SCC 552  , would not assist Defendant Nos.14 and 15. In this case the Respondent Manjulaben had filed a Suit, claiming damages against the Municipal Corporation on the ground that the Municipal Corporation had failed in its statutory duty to check the healthy condition of trees, as her husband had died by falling of a a tree which, according to Majulaben was not maintained in a healthy condition by the Municipal Corporation. It was her claim that the statutory duty of the corporation gave rise to a tortuous liability. In this context, the Suit filed by Manjulaben was decreed by the trial Court for a sum of Rs.The decree was confirmed by the Division Bench in appeal. In this context, the Supreme Court in paragraph 10 of this decision made observations that tort and contract are distinguishable. It was observed that in tort, liability is primarily fixed by law while in contract further observed that if the claim depends upon proof of the contract, action does not lie in tort and if the claim arises, from the relationship between the parties, independent of the contract, an action would lie in tort at the election of the Plaintiff although he might alternatively have pleaded in contract. In our opinion, this decision would certainly not avail to the benefit of the Appellant as these observations of the Supreme Court itself make it clear that even if a claim between the parties arises independent of a contract still an action would lie in tort at the election of the Plaintiff. In the present case, the Plaintiffs suit against Defendant no.1 may be on contract nonetheless, the Plaintiff could very well maintained his suit against the Appellant/Defendant Nos.14 and 15 diverse the contractual relations between the parties.44. This takes us to the other issue as urged on behalf of Defendant Nos.14 and 15 that they do not become personally responsible for the acts of the Company. In this regard reliance is placed on behalf of Defendant Nos.14 and 15 on the decision of the learned Single Judge of Delhi High Court in the case "Tristar Consultants vs Customer Services India Pvt.Ltd.Anr., 2007 Delhi 157". There cannot be a dispute on the proposition as contained in paragraph 19 to 23 of the decision that individual Director would have no power to act on behalf of the company of which he is a Director unless so authorised. In the legal position as a Company stands, the Directors of the Company would have no fiduciary or contractual duty towards a third party who deals with the company. However, as observed by us above,the present case is not a case which merely rests on the contractual terms but according to the plaintiffs, it is a collusion fraud and the defendants becoming beneficiaries of such acts. It is for these reasons, the normal role of a Director in the normal course, as canvassed on behalf of the defendant nos.14 and 15/Appellant would not become applicable in the facts of the present case. In considering such pleas, the facts and circumstances as borne out in the pleadings in each case are required to be considered so as to determine as to whether any cause of action is made out or otherwise before exercising power as conferred under Order 7 Rule 11(a) of C.P.C.45. The Appellants reliance on the decision of the Supreme Court in the case of S.M.S. Pharmaceuticals Ltd. vs Neeta Bhallaanr., (2005) 8 SCC 89  , is in support of their submission that merely because the Appellants were Directors of Defendant no.4 Company, there cannot be any monetary liability on the Directors and the liability would be of the company. The Supreme court observed that there is no universal rule that a Director of a company would beday affairs. However, the Supreme Court at the same time observed that as to what was the role of the Director of a Company is a question of fact depending on the peculiar facts in each case. This decision arose out of the proceedings initiated under sections 141, 138 of the Negotiable Instruments Act, 1881 and in that context, the Supreme Court had made these observations that to fasten a criminal liability a specific case should be spelt out in the complaint against the person who has sought to be made liable. Parameters of the pleadings in a criminal complaint case cannot be made applicable to the facts of the present case where the issue is under Order 7 Rule 11(a) and Order 1 Rule 10(2) of the Code of Civil Procedure.46. In the case of Mukesh Hans (supra) the learned Single Judge of the Delhi High Court was considering a case arising out of the decision of the trial Court decreeing a summary Suit against the Directors of a company incorporated under the Companies Act. The Company had failed to redeem the convertible debentures issued to the plaintiffs. The decision to issue these debentures was of the Board of Directors of the Company through whom the Company was acting. In these circumstances, the Court held that the directors cannot be held to be responsible when there was no assertion in the plaint that the Directors had undertaken to make payment to the plaintiffs of the loan amount on behalf of the company. There was no case made out for piercing of the corporate veil. Further if fraud was to be made the basis of the decree when the plaint did not have sufficient particulars in that regard. These being the facts this decision would not be applicable as in the present case there are allegations of fraud and connivance. The facts are peculiar as seen from the plaint. The Court cannot in applying the principles under Order 7 Rule 11(a) and Order 6 Rule 4, be unmindful of the enormity and the complexity of the cause as reflected in the plaint. This would not permit defendant nos.14 and 15 to justify their case under Order 7 Rule 11 to rely on this decision of the learned Single Judge of the Delhi High Court.47. In this context, the reliance on behalf of the learned Counsel for the Plaintiff on the decision of the learned Single Judge of the Delhi High Court in the case of "Deepak Ansal Vs. Ansal Properties and Industries Ltd.Anr." (supra) and also the decision of the learned Single Judge of this Court in "Clarinda DSouza Vs. Mccann Erickson India Ltd." (supra) is well founded inasmuch as the Court would be required to consider all the averments in the plaint in relation to the reliefs as prayed for in the suit. In the present case as we have noted above there are sufficient averments for us to conclude that interference under the powers of the Court under Order 7 Rule 11(a) read with Order 1 Rule 10(2) is not warranted at this stage.48. In view of our above observations, the reliance in the decision of "Church of Christ Charitable Trust and Educational Charitable Society Vs. Ponnoamman Educational Trust, (2012)8 SCC 706  " would also not assist the Appellants. We are in complete agreement with the contentions as urged on behalf of the Plaintiff/Respondent No.1 that the plaint has made out a cause of action against defendants Nos.14 and 15. The reliance on the part of the Plaintiff on the decision of the Supreme Court in the case "Sopan vs Assistant Charity Commissioner" (supra) in support of the proposition that the intention of the party concerned is to be gathered primarily from its tenor and terms of the pleadings taken as a whole and no pedantic approach should be adopted to defeat justice ontechnicalities, is well founded.49. We may thus observe that the plaint in the present case contains a statement of all the material circumstances constituting fraud. It is trite law that an application under Order 7 Rule 11 read with Order 1 Rule 10(2) can be moved at any stage of the suit. We are not persuaded to form an opinion at this stage that the averments made in the plaint are thus not sufficient for the purpose of seeking relief as claimed in the suit against Defendant nos.14 and 15. It also cannot be overlooked that some facts are within the special knowledge of these defendants. These facts cannot be expected to be pleaded by the Plaintiffs.