A.J. Shetty vs Thorbrau Augsburg and Others

N. Kumar, J.—This is a regular first appeal by the 2nd defendant challenging the judgment and decree passed by the trial Court decreeing the suit of the plaintiff jointly and severally directing the defendants to pay a sum of Rs. 10,00,000/- with interest at 15% p.a. from the date of suit till realization to the plaintiff.

For the purpose of convenience, parties are referred to as they are referred to in the original suit:

Plaintiff, Thorbrau Augsburg is a leading German reputed brewery, manufacturing different types of beer from Augsburg, Germany and is having the technical know-how to set up new breweries with skilled labour, technicians, supervisors and engineers. Defendant No. 2 negotiated with the plaintiff and entered into an agreement dated 20.3.1995, wherein the defendants were permitted to use the plaintiff''s brand name of M/s. Thorbrau in India and in some neighbouring countries and had agreed to pay royalty at 4% on the production of beer. Thereafter they entered into a further supplemental agreement dated 7.3.1998 wherein defendants agreed to provide bank guarantee for Rs. 10 lakhs. Thereafter defendants pleaded inability to give a bank guarantee and offered a personal guarantee for Rs. 10 lakhs and on 11th May, 1998, defendants executed a personal guarantee bond at Mangalore for a sum of Rs. 10 lakhs in favour of plaintiff. One of the conditions was that if defendants fail to pay the royalty under the aforesaid agreement, then defendants had unconditionally agreed to pay to plaintiff on mere demand a sum of Rs. 10 lakhs within a week from receiving such demand. The personal guarantee was without any conditions or restrictions and defendants are bound to perform their contractual obligations. Believing defendants to be trustworthy in business, plaintiff in good faith accepted the personal guarantee of defendants instead of a bank guarantee. The defendants have been manufacturing and selling beer under plaintiff''s brand name and had brought about two beers by name Kolber and Lion King. Defendants with the technical assistance and expertise of plaintiff and its men who flew from Germany now and then incurred huge expenses to set up the factory of the defendants. After setting up the factory at Mangalore, defendants started production and used plaintiff''s brand name, but did not make any payment towards royalty. The plaintiff issued a notice dated 22.2.2001 enforcing the personal guarantee dated 11.5.1998 for Rs. 10 lakhs executed by defendants and demanded the sum of Rs. 10 lakhs. Defendants deliberately evaded the said notice and have not claimed the same. One more notice was sent on 15.3.2001 by registered post with acknowledgement, which was duly served on defendant No. 1. Notice was also sent to residence of defendant No. 2. Though the defendants are liable to pay much more than the amount specified in the personal guarantee bond, plaintiff limited its claim to the said amount of Rs. 10 lakhs agreed to be paid under the said bond. Contending that the cause of action for the suit arose on 22.2.2001, the plaintiff filed the suit for recovery of the said amount of Rs. 10 lakhs under the personal guarantee bond.

After service of summons, defendants entered appearance and filed separate written statements.

Defendant No. 1 in his written statement has denied all the allegations made in the plaint. They contended that Mr. Walter Vaz, the person who has signed and verified the plaint, has no authority to prosecute the suit. The 1st defendant denied the execution of agreement dated 20.3.1995 for the use of plaintiff''s brand name and agreed to pay royalty at 4% on the production of beer. They also denied the execution of supplementary agreement dated 7.3.1998 where they agreed to provide a bank guarantee for a sum of Rs. 10 lakhs in favour of the plaintiff. They also denied the execution of personal guarantee. It is stated that if there is any such agreement between the plaintiff and defendant No. 2, for which the 1st defendant is not a party, there is no privity of contract between the 1st defendant and the plaintiff. The 1st defendant has never been engaged in any business activity in selling beer under the trade name Kolbar and Lion King. They denied the plaintiff incurring expenses for providing technical assistance and expertise to the 1st defendant. They further denied the receipt of legal notice and contended that filing of the suit is bad and hopelessly barred by limitation. Hence, the plaintiff is not entitled for any relief.

The 2nd defendant while filing the written statement had admitted the agreement dated 20.3.1995, however they also denied the supplement agreement dated 7.3.1998 agreeing to provide bank guarantee for Rs. 10 lakhs. They further denied the execution of personal guarantee bond for Rs. 10 lakhs at Mangalore in favour of the plaintiff. They contended that the alleged personal guarantee was not accepted by the plaintiff. Without prejudice, it is contended that the alleged agreement and alleged guarantee are executed not personally but for and on behalf of the 1st defendant company. Therefore, there is no question of payment of royalty to the plaintiff as there is no privity of contract between the parties and the defendants did not produce the beer in the brand name of the plaintiff. The said alleged guarantee bond itself is bad in law and cannot be enforced against defendant No. 2. The suit is barred by law of limitation. The 2nd defendant contended that on 10.3.2001 as per the share purchase agreement entered into between the 2nd defendant and other major shareholders of the 1st defendant company with United Breweries (Holdings) Ltd. Company, the said company is liable for all the existing debts and liabilities including the statutory liabilities of the 1st defendant company. From the date of share purchase agreement it shall be the liability of the company and the company alone shall be liable to discharge such debts and liabilities and there shall be no liability whatsoever on the existing directors. They released all the debts and liabilities of the company. The plaintiff is well aware about the share purchase agreement referred to above and the plaintiff''s claim, if any, against the United Breweries Ltd. company who has purchased the 1st defendant company or the 1st defendant company and the said company has been producing and manufacturing beer and marketing. The 2nd defendant is neither liable to pay any amount to the plaintiff nor is a necessary party in the above suit and sought for dismissal of the suit.

The 3rd defendant was subsequently impleaded in the suit. The 3rd defendant filed a memo dated 23.5.2005 adopting the written statement filed by the 1st defendant.

Subsequently, the cause title of the plaint was amended to state that the plaintiff is a limited company, registered under the Laws of Germany and is represented by its Managing Director Max Kunhle. The additional written statement was filed by the 2nd defendant denying those allegations. The authority to Max Kunhle to represent the plaintiff company is also denied. Further they denied the competence of Walter Vaz to represent the company as PA holder. Defendants No. 1 and 3 also filed additional written statements questioning the competence of foreign company registered under the Laws of Germany to file a suit in India. Therefore they sought for dismissal of the suit on those grounds.

On the aforesaid pleadings, the trial Court framed the following issues:

"1. Whether the plaintiff proves the personal guarantee bond dated 11.05.1998?

Whether the plaintiff is entitled to the suit amount?

Whether the plaintiff is entitled for the Judgment and Decree as sought for?

To what decree or order?

Addl. Issues framed on 09.10.2009

Whether the plaintiff proves that there is supplemental agreement dated 07.03.1998 entered into between the parties?

Whether the plaintiff proves that the defendants have manufactured the beer under the brand name of the plaintiff as alleged in the plaint?

Addl. Issues framed on 27.06.2012

Whether the plaint is signed and verified properly as required under Order 6 of C.P.C.?

Whether the suit is barred by limitation?

Addl. Issues framed on 21.07.2012

Whether the 2nd defendant proves that as per the Share Purchase Agreement dated 10.03.2001 entered into between 2nd defendant and other major shareholders of 1st defendant company with United Breweries (Holdings) Limited Company, the 3rd defendant is liable for all the existing debts and liabilities including the suit claim?

Whether the defendants prove that original 1st defendant company is now known as United Breweries Ltd.?

Whether the 3rd defendant proves that it is not liable to satisfy the suit claim?"

In support of their claim, the plaintiff has examined the PA holder as PW 1 and got marked Exs. P1 to P12. On behalf of defendants, officer of the 3rd defendant company has been examined as DW 1 and got marked Ex. D1, notarized copy of share purchase agreement dated 10.3.2001. The trial Court on consideration of all the aforesaid oral and documentary evidence on record and after hearing the learned counsel for the parties, held that the plaintiff has proved the personal guarantee bond dated 11.5.1998. Therefore, the plaintiff is entitled for suit claim. It also held that the plaintiff has proved the execution of supplement agreement dated 7.3.1998 and further held that the plaintiff has proved that the defendants have manufactured the beer under the brand name of plaintiff as alleged in the plaint. It also held that the plaint is signed and verified properly as required under Order 6 of CPC and the suit is not barred by law of limitation. Defendants have failed to prove that as per the share purchase agreement dated 10.3.2001 entered into between the 2nd defendant and other major shareholders of the 1st defendant company with United Breweries (Holdings) Limited Company, the 3rd defendant is liable for all the existing debts and liabilities including the suit claim. The defendants have failed to prove that the original 1st defendant company is now known as United Breweries Ltd. and also failed to prove that it is not liable to satisfy the suit claim. Hence, the suit has been decreed as prayed for against all the defendants.

Defendants 1 and 3 have not chosen to prefer any appeal. It is only the 2nd defendant has preferred this regular first appeal.

Learned counsel Miss. Farah Fathima appearing for the appellant assailing the impugned judgment and decree of the trial Court contended that the person who has given evidence as PW 1 had no authority in law to represent the plaintiff-company. Secondly, she contended that the 2nd defendant had executed the guarantee bond in the capacity of Managing Director of the 1st defendant and not in personal capacity and therefore passing of the decree against the 2nd defendant in his personal capacity is illegal. She further contended that the suit is barred by law of limitation. Lastly, it was contended that as per the share purchase agreement dated 10.3.2001, the 3rd defendant has taken over the entire assets and liabilities of the 1st defendant. Therefore, the 2nd defendant is not liable to pay the suit claim and she submits that the impugned judgment and decree passed by the trial Court calls for interference.

We do not see any merit in all these contentions.

Firstly, as could be seen from the cause title that the plaintiff, Germany Company is represented by its Managing Director, Sri Max Kunhle, who executed the GPA in favour of Walter Vaz, who has signed the plaint and has given evidence as PW 1 in the case. In fact, this aspect has not been properly noticed by the trial Court. Both of them are competent to sign the plaint representing the company and giving evidence. The aforesaid undisputed facts is evident from the cause title of the plaint. Sri Max Kunhle, who executed the GPA is none other than the Managing Director of the plaintiff-company. The Managing Director has duly represented the company and has executed the GPA and therefore the findings of the trial Court that the GPA Holder, Sri Walter Vaz representing the plaintiff-company in the suit is proper and does not call for interference. Therefore, we do not see any substance in the said contention.

Secondly, it is the specific case of the 2nd defendant that the personal guarantee bond executed by him in favour of the plaintiff on 11.5.1998 is in the capacity of Managing Director of the 1st defendant and not in his personal capacity. Therefore, the trial Court has extracted in the judgment the relevant recitals of Ex. P3, personal guarantee bond at para-15 of the judgment. A reading of the same makes it clear that the personal guarantee bond is upto a limit of Rs. 10 lakhs from the Managing Director, Sri A J Shetty, s/o. late Sankappa Shetty, r/a ''Prashanth Nilaya'', Kambla Cross Road, Alake, Mangalore and he has consented to provide such a personal guarantee to accredited power of attorney holder of Thorbrau Augsburg upto a limit of Rs. 10 lakhs on the terms and conditions mentioned therein. Therefore, the personal guarantee bond was executed by the 2nd defendant in his personal capacity. Hence, the trial Court was justified in holding that the personal guarantee bond executed by the 2nd defendant in his personal capacity and not on behalf of the 1st defendant-company. Therefore, the finding recorded by the trial Court to the effect is based on legal evidence and cannot be found fault with.

Thirdly, the personal guarantee bond was executed on 11.5.1998. The suit was filed on 21.4.2001 well within three years from the date of execution of personal guarantee bond. As per the terms of the bond, in the event of default in making payment of royalty, the plaintiff was given right to enforce the personal guarantee and that he had issued a notice stating that the outstanding amount to be paid within a week. In fact, the notice was issued on 22.2.2001 demanding Rs. 10 lakhs under the personal guarantee bond when it was not complied with, one more notice came to be issued on 15.3.2001 again making demand and that was not complied, immediately on 21.4.2001 the suit was filed. Therefore, the suit is clearly well within time.

Fourthly, insofar as the liability of the 1st defendant and the 2nd defendant getting extinguished because of share purchase agreement dated 10.3.2001 is concerned, the plaintiff is not a party to the said agreement. Therefore, the trial Court was justified in decreeing the suit of the plaintiff against all the three persons. Hence, we do not see any merit in the appeal, which calls for admission.

Accordingly, the appeal is dismissed at the stage of admission.