S Chandradas and others v. Choolayil Finance & Investment Company Pvt. Ltd.

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT** ## **THE HONOURABLE MRS. JUSTICE C.S. SUDHA** ## **SATURDAY, THE 30[TH] DAY OF SEPTEMBER 2023 / 8TH ASWINA, 1945 RFA NO. 246 OF 2004 AGAINST THE ORDER/JUDGMENT IN OS 113/1999 OF PRINCIPAL SUB COURT, ATTINGAL** ## **APPELLANTS/PLAINTIFF/PETITIONER IN I.A.NO.279/2004:** - **1 S.CHANDRADAS, S/O. LATE SRI SANKARAN, BUSINESSMAN, SUKHAGIRI BUNGLOW, SREENIVASAPURAM,, VARKALA VILLAGE.(DIED)** - **2 *ADDL.A2.GIRIJA DAMODARAN,AGED 63 YEARS, W/O.LATE S CHANDRADAS, SUKHAGIRI BUNGLOW, SREENIVASAPURAM, VARKALA VILLAGE** - **3 *ADDL.A3.KAVITHA C., AGED 38 YEARS,** - **D/O..LATE S CHANDRADAS, SUKHAGIRI BUNGLOW, SREENIVASAPURAM, VARKALA VILLAGE.** - **4 *ADDL.A4.BINU C., AGED 37 YEARS, S/O.LATE S CHANDRADAS, SUKHAGIRI BUNGLOW, SREENIVASAPURAM, VARKALA VILLAGE.** - _***LEGAL HEIRS OF DECEASED SOLE APPELLANT ARE IMPLEADED AS ADDITIONAL A2 TO A4 VIDE ORDER DATED 20/11/2019 IN IA 524/2017.**_ - _***ADDITIONAL A2 IS APPOINTED AS THE NEXT FRIEND OF ADDITIONAL A3 VIDE ORDER DATED 20/11/2019 IN IA 526/2017.**_ **BY ADVS.** **SRI.GEORGE VARGHESE(PERUMPALLIKUTTIYIL) SRI.A.R.DILEEP** **SRI.MANU SEBASTIAN, SRI.NIMESH THOMAS** ## **RESPONDENTS/DEFENDANTS IN I.A.NO.279/2004:** - **1 CHOOLAYIL FINANCE & INVESTMENT CO.PVTLTD PVT.LTD., HAVING ITS REGISTERED OFFICE AT, CHOOLAYIL, AYROOR P.O., VARKALA,, REPRESENTED BY ITS DIRECTORS RESPONDENTS 2 AND 3** - **2 K.RAJENDRAN NAIR SO. SRI.KRISHNA PILLAI BUSINESSMAN, DIRECTOR, CHOOLAYIL FINANCE AND, INVESTMENT COMPANY PVT.LTD., RESIDING AT, MULAKKAL VEEDU, AYIROOR VARKALA.** - **3 A.SHEELA DEVI WO. K.RAJENDRAN NAIR DIRECTOR CHOOLAYIL FINANCE AND INVESTMENT, COMPANY PVT. LTD., RESIDING AT MULAKKAL VEEDU, FROM RAMAVILASOM AYIROOR, VARKALA.** ## **BY ADV SRI.P.R.VENKATESH** **THIS REGULAR FIRST APPEAL HAVING COME UP FOR ADMISSION ON 30.09.2023, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:** **R.F.A.No.246 of 2004** 2 ## **C.S.SUDHA, J.** **------------------------------------------------------R.F.A.No. 246 of 2004 ---------------------------------------------------Dated this the 30th day of September, 2023** ## **J U D G M E N T** This appeal under Order XLI Rule 1 C.P.C. has been filed by the plaintiff in O.S.No.113/1999 on the file of the Subordinate Judge's Court, Attingal, against the judgment and decree dated 05/03/2004 by which the suit has been dismissed. The respondents herein are the defendants in the suit. During the pendency of this appeal, the sole appellant/ plaintiff passed away and hence his legal representatives have been impleaded as additional appellants 2 to 4 _vide_ order dated 20/11/2019 in I.A.No.524/2017. The additional second appellant has been appointed as the next friend of the additional third appellant _vide_ order dated 20/11/2019 in I.A.No.526/2017. The parties will be referred to as described in the suit. 2. According to the plaintiff, the first defendant (D1) is a Private Limited Company incorporated under the Companies Act, 1956, engaged in banking business, having its registered office at Choolayil, Ayroor, Varkala **R.F.A.No.246 of 2004** 3 represented by its Directors, namely, defendants 2(D2) and 3(D3). D2 is the husband of D3. They are the Directors of D1 Company doing banking business from the date of the registration of the Company. On 31/12/1997, D2 received a sum of ₹2,00,000/- from the plaintiff as fixed deposit with the D1 Company. On the same day, Ext.A1 fixed deposit receipt was issued on behalf of D1 Company signed by D2 along with the Manager and Accountant of the Company. As per Ext.A1, the deposit for a period of one year would carry interest at the rate of 15% per annum. The maturity date of the deposit was 01/01/1999. Interest was paid from 31/01/1998 till 31/08/1998. Thereafter, there has been no payment of interest. When the fixed deposit matured, the plaintiff approached D2 and D3 and demanded the repayment of the amount with interest. However, the defendants evaded payment on one pretext or the other. Thereafter, the plaintiff has come to know that D2 and D3 have closed down D1 company and have absconded. Hence the suit for recovery of a sum of ₹2,33,750/- with interest on the principal amount of ₹2,00,000/- at the rate of 15% per annum from the date of suit till realisation and costs from the defendants and their assets. 3. D1 and D2 are _ex parte_ . 3.1. D3 entered appearance and filed written statement, in which **R.F.A.No.246 of 2004** 4 she contended that she had been made a Director of the D1 Company by her husband/D2, without her knowledge or consent. She is unaware of the transaction referred to in the plaint. From January 1998, she is suffering from mental disorder and is under treatment for the same. D2 has deserted D3 and her children from the time D3 has been afflicted with mental illness. D3 had resigned as Director of the Company and in her place one S.P.Rajendran Nair has been inducted as a Director w.e.f. 05/04/1998, which has been approved by the Registrar of Companies. D3 is not liable for any debt incurred by defendants 1 and 2. She is an unnecessary party in the suit. The plaintiff can realise the plaint amount if he is lawfully entitled to the same from defendants 1 and 2 and S.P. Rajendran Nair, the Director, who has been inducted in the place of D3 and from their assets. 4. Necessary issues were framed by the trial court. PW1 to PW3 were examined and Exts.A1 to A4 were marked on the side of the plaintiff. DW1 was examined and Ext.B1 was marked on the side of D3. The trial court on an appreciation of the oral and documentary evidence and after hearing both sides, passed the impugned judgment, dismissing the suit. Aggrieved, the plaintiff has come up in appeal. **R.F.A.No.246 of 2004** 5 5. The only point that arises for consideration in this appeal is whether there is any infirmity in the findings of the court below calling for an interference by this Court. 6. Heard both sides. 7. As per the plaint, an amount of ₹2,00,000/- was received by D2 on 31/12/1997 from the plaintiff as fixed deposit in the name of D1 Company. Ext.A1 is the fixed deposit receipt evidencing the same. The allegation that this amount has been received by D2 in the name of D1 Company and that Ext.A1 had been issued, is not denied by D3, who is none other than the wife of D2 in the written statement filed by her. On the other hand, she only pleads ignorance of the said transaction. Defendants 1 and 2 are _ex parte_ in this suit. Therefore, the case of the plaintiff that D2 had received an amount of ₹2,00,000/- on 31/12/1997 as fixed deposit in the name of D1 Company and had issued Ext.A1 receipt stands unchallenged or undisputed. Therefore, the case of the plaintiff that he did deposit the said amount with D1 Company stands established. 8. Now the question is whether D3 is liable for the amount due to the plaintiff. Ext.A1 fixed deposit receipt is seen signed by D2 as well as the Manager and Accountant of D1 Company. Admittedly, the same is not **R.F.A.No.246 of 2004** 6 signed by D3. Ext.A4, the Search Report and Ext.B1, Form No.32 under the Companies Act, 1956 showing the particulars of appointment of Directors and Manger and changes among them in the D1 Company, show that D3 resigned from the Directorship of the Company on 06/04/1998 and in her place one S.P.Rajendran Nair has been appointed as Director. Therefore, the fact that D3 was a Director of D1 company till 06/04/1998 also stands established. D3 takes up a contention that D2, her husband, inducted her as a Director of the Company without her knowledge or consent. She also contends that from January 1998, she has been suffering from mental illness and has been under treatment for the same. D3 never entered the witness box. On the other hand, she examined her brother DW1 on her behalf taking up a plea that she is mentally unsound. However, absolutely no evidence has been produced to substantiate the allegation that D3 has been mentally unsound from January 1998. It is quite interesting to note that though D3 has taken up such a contention, she is seen to have filed I.A.No.1894/2001 for setting aside the _ex parte_ decree passed against D1 Company. Initially, an _ex parte_ decree had been passed by the trial court on 03/01/2003. D3 filed I.A.No.1894/2001 for setting aside the _ex parte_ decree. The petition was dismissed by the trial court against which she filed F.A.O.No.71/2003. This Court by order dated 03/09/2003 set aside the order **R.F.A.No.246 of 2004** 7 of the trial court on condition that D3 pay a sum of ₹1,000/- towards costs within a period of one month from the date of the order. The trial court was directed to take back the suit to file on compliance of the said condition and to dispose of the same at the earliest. Accordingly, the trial court took up the matter, gave opportunity to D3 to file written statement, recorded evidence and passed the impugned judgment. In the aforesaid proceedings, D3 never had a case of mental disorder. She is seen to have prosecuted the proceedings on her own without the appointment of a next friend. Further, going by the version of DW1, he has no direct knowledge of the plaint transaction and that he was deposing on the basis of the instructions of his sister, D3. Therefore, it is clear that the defence of insanity taken up by D3 is just a ploy to avoid appearing before the court. 9. Be that as it may, Ext.A1 fixed deposit receipt is not signed by D3. There is no case in the plaint that D3 had accompanied D2 to the house of the plaintiff and had persuaded the plaintiff to part with the amount and deposit the same in the name of D1 Company. There is no pleadings or evidence to show that D3 was in charge and responsible for the conduct of the business of the Company. As per Section 291 of the Companies Act, 1956, the Board of Directors shall be entitled to exercise all such powers **R.F.A.No.246 of 2004** 8 and to do all such acts and things, as the Company is authorised to exercise and do. A Company though a legal entity can act only through its Board of Directors. The settled position is that a Managing Director is _prima facie_ in charge and responsible for the Company's business and affairs and can be prosecuted for offences of the Company. But in so far as the other Directors are concerned, they can be prosecuted only if they were in charge of and responsible for the conduct of the business of the Company. ( **National Small Industries Corpn. Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330; M.A.A. Annamalai v. State of Karnataka, (2010) 8 SCC 524.)** 10. Further, even according to the plaintiff, the cause of action arose on 31/12/1997, the date of the fixed deposit; on 01/01/1999, the date of issuance of Ext.A1 receipt and on 05/01/1999, the last date of demand for repayment of the amount made to D3 in person. On the date of maturity of Ext.A1, that is, on 01/01/1999, D3 was admittedly not a Director of the Company. In such circumstances, when the cause of action arose, D3 not being a Director of the Company, cannot be held liable for the amount stated in Ext.A1. 11. Though D3 cannot be held liable, D1 and D2 certainly ought to have been made liable. The trial court was labouring under the wrong **R.F.A.No.246 of 2004** 9 impression that the _ex parte_ decree passed on 03/01/2003 still subsists against D1 and D2 as only D3 had moved the court for setting aside the _ex parte_ decree. I.A.No.1894/2001 filed by D3 for setting aside the _ex parte_ decree passed on 16/02/2001 was dismissed by the trial court by order dated 24/03/2003. It was against the said order, F.A.O.No.71/2003 was filed. This Court as per order dated 03/09/2003 set aside the order in I.A.No.1894/2001 and the trial court was directed to take back the suit to file and dispose of the same at the earliest. Therefore, the statement of the learned trial judge in paragraph 7 of the impugned judgment that an _ex parte_ decree passed against defendants 1 and 2 on 03/01/2003 is still in force, is apparently incorrect. In such circumstances, a decree ought to have been passed against defendants 1 and 2. Even D3 in her written statement states that the plaintiff can get the plaint amount from D1 and D2, if he is legally entitled to the same. As stated earlier, the case of the plaintiff that an amount of ₹2,00,000/- was received by D2 on 31/12/1997 and had issued Ext.A1 receipt stands unchallenged. That being the position, the plaintiff is certainly entitled to get a decree as against defendants 1 and 2. In the result, the appeal is partly allowed and the decree and judgment of the court below is set aside. The suit is decreed and the plaintiff is **R.F.A.No.246 of 2004** 10 entitled to realise an amount of ₹2,33,750/- with interest on the principal amount of ₹2,00,000/- with interest at the rate of 15% per annum from the date of suit till decree and thereafter at the rate of 6% per annum from the date of decree till realisation and cost from defendants 1 and 2 and their assets. Suit as against D3 is dismissed. **Sd/C.S.SUDHA JUDGE** ak **R.F.A.No.246 of 2004** 11 ## **APPENDIX OF R.F.A.No.246 of 2004** ## **' - RESPONDENTS ANNEXURES:** **ANNEXURE 1:** **CERTIFIED TRUE COPY OF THE REPORT OF THE AMIN EFFECTNG ATTACHMENT WITH ORDER TO CALL FOR SECURITY AND THE SCHEDULE OF PROPERTY.**