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P.S. Narayana, J.—These two Appeals are preferred by the unsuccessful plaintiff in O.S. No. 342/80 and O.S. No. 301/81 on the file of Subordinate Judge, Vijayawada.
The pleadings, Issues and also the questions involved in both the matters are virtually one and the same, except that certain parties are different, the appellant/plaintiff being common.
The suit O.S. No. 342/80 was filed for the relief of declaration that the decree in O.S. No. 242/77 on the file of Subordinate Judge, Vijayawada dated 27-10-1979 is void having been obtained against the plaintiff by the defendants fraudulently and collusively. Likewise, O.S. No. 301/81 was filed for a declaration that the decree dated 21-9-1977 in O.S. No. 63/77 on the file of Subordinate Judge, Gudivada is void, having been fraudulently and collusively obtained by the defendants against the plaintiff.
The plaintiff in both the suits is Andhra Lakshmi Industrial Company Ltd., having its registered office at Kavutaram. The respective averments made in the pleadings can be narrated briefly as hereunder:
The plaintiff is a company incorporated under the provisions of the Indian Evidence Act having its registered office at Kavutaram, Vijayawada and the plaintiff is carrying on rice milling business. It is a raw and boiled rice mill of its own. One K.L.N. Prasad and some other shareholders of the Company have perused the Auditors'' report dated 20-12-1978 wherein the balance sheets of the Company for the years 1973-74, 1974-75 and 1975-76 were scrutinized and found that the defendants herein obtained exparte decree against the plaintiff Company in O.S. No. 242/77 on the file of this Court on 27-10-1979 in favour of 1st defendant for Rs.91,252-09 ps. and the other in O.S. No. 63/77 dated 21-9-1977 on the file of the Subordinate Judge, Gudivada for a sum of Rs.91,352-52 ps. in favour of Koduru Venkata Seshagiri Rao, represented by General Power of Attorney, Maganti Sivaramakrishna Prasad, on the basis of pronote alleged to have been executed by late Koduru Madhusudhana Rao and subsequently by late Hanumara Kishan Prasad Choudary, the erstwhile Managing Director of the plaintiff Company. The above loans did not find a place in Company''s accounts. The Company did neither contest the suits nor filed appeals against the exparte decrees and that the erstwhile Board of Directors in their meeting on 22-12-1977 resolved to pay the said loans out of the Company''s funds and or properties. On investigation, it was revealed that Koduru Madhusudhana Rao was the Secretary of the plaintiff Company till he resigned in the year 1957 while his brother Koduru Ramabrahmam was one of the Directors of the plaintiff Company from 10-11-1955 to 10-6-1957 and again from 20-11-1958 till he died in October, 1979. He has also two sons Sivaramakrishna Prasad and Venkata Seshagiri Rao. Late Madhusudhana Rao appears to have executed two promissory notes dated 1-1-1952 one in favour of M. Sivaramakrishna Prasad for Rs.20,167-12 ps. with interest at 9% p.a. and the other in favour of Venkata Seshagiri Rao for Rs.19,958-00 ps. with 9% p.a. interest. Both the promisees being minors, represented by their natural father and guardian, Koduru Ramabrahmam. Later the pronotes appear to have been renewed, one for Rs.20,659-11-9 in favour of Sivaramakrishna Prasad and the other for Rs.20,700-0-6 ps. in favour of Venkata Seshagiri Rao. Subsequent to the resignation of Madhusudhana Rao, Hanumara Kishan Prasad Choudary as Director, renewed the above pronotes on 23-12-1957. It is further learnt that Kishan Prasad Choudary made certain payments and finally the pronotes were renewed for Rs.71,992-84 ps. in favour of Maganti Sivarama Krishna Prasad and another for Rs.71,937-92 ps. in favour of Venkata Seshagiri Rao. Maganti Sivarama Krishna Prasad transferred the said pronote to the 1st defendant on 15-6-1977 for collection and the 1st defendant filed O.S. No. 242/77 for realization of the amount. Maganti Sivarama Krishna Prasad as the General Power of Attorney of Koduru Venkata Seshagiri Rao filed O.S. No. 63/77 on the file of Sub-Court, Gudivada and both the suits were decreed exparte on 27-10-1977 and 21-9-1977 respectively.
K.L.N. Prasad and some shareholders discovered gross mismanagement of the plaintiff Company by the previous Board of Directors and therefore filed Company Petition No. 1/79 in the High Court of A.P. under Sections 397 and 398 of the Companies Act for superseding the Board of Directors and appoint an administrator in their place. They have also obtained interim injunction against the plaintiff Company restraining the plaintiff from paying the amount to 1st defendant in pursuance of the decrees obtained by the defendant. While so the General Body meeting of the Company was held on 27-5-1980 and the present Directors in their meeting considered the aspect of the decrees obtained by them and opined that Kishan Prasad Choudary has no authority to execute pronotes and will not bind the Company. The Board of Directors authorized one Yerneni Ramakrishna Babu, one of the present Directors to take suitable steps to safeguard the interests of the Company. The decrees were obtained fraudulently and they are collusive, sham and nominal. The account books were in the custody of the previous Directors and they have suppressed to file them in the company Petition. The account books from 1-10-1973 to 30-9-1976 do not show that the debts were outstanding which would prove that the debts were discharged long prior to 31-7-1974. Apart from it, late Ramabrahmam, the father of the defendants, who was one of the Directors signed on all the balance sheets from 1960 onwards and they would show the general reduction in the outside liabilities. In the year 1968-69 the liabilities stood at Rs.311/-. Late Hanumara Kishan Prasad Choudary has no authority to execute the pronotes on behalf of the Company. It is only the Secretary and Treasurer of the Company that certain execute pronotes on behalf of the Company as per Article 10 of the Articles of Association. Therefore, the pronotes are not valid and binding on the Company. The previous Board of Directors and the promisees are closely related to each and formed into a family group. Thus, Ramabrahmam and Hanumara Kishan Prasad Chowdary conspired together to benefit themselves and with that design they created the pronotes. Apart from it that Court has no jurisdiction to entertain O.S. No. 242/77 as no part of cause of action for the suit arose within the jurisdiction of this Court. Therefore the above suits were filed for declaration that the decrees in O.S. No. 242 of 1977 and O.S. No. 63 of 1977 are not binding on the Company.
As already stated supra, though certain defendants are different, they also filed written statements on similar lines and the averments made in the respective written statements can be briefly narrated as hereunder:
It is stated that the plaintiff has to prove that the person who signed in the plaint has authority to do so. It is further stated that the decrees have become final and conclusive, and no appeal was filed against them or a petition to set aside the exparte decree. The plaintiff cannot raise any defence which it would and ought to have taken in those suits. There was no fraud played by either of the defendants in service of summons. The contention that the Company had discharged the debts long time back and that the pronotes were not executed by the authorized persons on behalf of the plaintiff could have been raised in the previous suits and the plaintiff having not urged the said facts in the previous suits, the decrees cannot be set aside. K. Ramabrahmam, their natural father as their guardian, deposited certain amounts in their name with the plaintiff on condition that the plaintiff Company would repay the same with interest at 9% p.a. The amounts deposited were dwelled in the plaintiff''s accounts. The amounts deposited amounted to Rs.20,167-75 ps. and Rs.19,958/- by 1-1-1952. K. Madhusudhana Rao, the then Secretary of the plaintiff Company executed two pronotes on 1-1-1952, one for Rs.20,167/75 ps and another for Rs.19,958/-. Madhusudhana Rao made some payments and endorsed the same under the reverse of the pronotes. By 23-12-1954 the amount became Rs.20,695-11-9 and Rs.20,700-0-6 and two pronotes were executed for the said amount. Later, the Secretary, Madhusudhana Rao resigned and in his place Kishan Prasad Choudary became the Director. The Board of Directors have authorized the said Choudary to borrow amounts on behalf of the Company. Thus Kishan Prasad Choudary acting as the Director has executed the pronotes dated 23-12-1957. Later he made some payments and duly endorsed on the reverse of the pronotes. Finally, Kishan Prasad Choudary executed two pronotes in favour of the defendants - one for Rs.71,922-84 ps and another for Rs.71,937-92 ps. Since Kishan Prasad Choudary was not paying the amount a demand notice was also made against the Company. The plaintiff having received the notice, did neither give any reply nor pay any amount. Therefore, 1st defendant in O.S. No. 342/80 filed O.S. No. 242/77 on the file of this Court and the plaintiff in spite of receipt of summons did not choose to contest and became exparte. 1st defendant in O.S. No. 301/81 filed O.S. No. 63/77 on the file of Sub-Court, Gudivada and the plaintiff has become exparte since he did not choose to contest the matter. Subsequent events that took place in the Company in between the members and the Board of Directors are all irrelevant for the purpose of the suit. K.L.N. Prasad and others know full well about the existence of the above decrees against the Company. The General Body held a meeting on 25-1-1979 which had been validly convened and the resolutions passed therein are binding on the plaintiff. In the said meeting the Company has resolved to clear of the debts due to these defendants. Subsequent resolutions setting at naught the earlier resolutions are void. It is not open for the Board of Directors to pass resolution cancelling the earlier resolutions which were passed validly by the previous Board of Directors. The decrees obtained by these defendants are neither collusive nor sham, nominal and fraudulent. They are perfectly valid and binding on the plaintiff. The plaintiff Company must have effected changes in the account books and manipulated the entries to suit the false plea taken by them. The plaintiff has taken inconsistent stands. On the one hand it is contended that there were no debts at all and on the other hand it comes up with the story that the debts were repaid as pleaded in para 20 of the plaint. The plaintiff is not at all entitled for setting aside the decrees and therefore prayed for dismissal of the suit with costs.
In view of the respective pleadings of the parties, the trial Court had framed the following Issues in O.S. No. 342/80:
Whether the decree in O.S. No. 242/77 on the file of this Court is vitiated by fraud and collusion ?
Whether the plaintiff is entitled for the declaration and injunction prayed for ?
To what relief ?
On the strength of the pleadings in O.S. No. 301/81, the following Issues were settled:
Whether the decree obtained in O.S. No. 63/77 on the file of Sub-Court, Gudivada is vitiated by fraud and collusion ?
Whether the plaintiff is entitled for the declaration and injunction as prayed for ?
To what relief ?
Before the trial Court, PW-1 and PW-2 and DW-1 and DW-2 were examined and Exs.A-1 to A-42 and Exs.B-1 to B-20 were marked. On appreciation of both oral and documentary evidence, by a Common Judgment, both the suits were dismissed with costs and aggrieved by the same, the plaintiff had preferred the aforesaid two Appeals and in view of the fact that the questions of fact and questions of law involved in both the matters are virtually the same, and the same had been disposed of by a Common Judgment by the trial Court, the counsel representing the respective parties also had advanced common arguments in both the Appeals, and hence both these Appeals are being disposed of by this Court also by a Common Judgment.
Sri M. Chandrasekhar Rao, the learned Senior Counsel representing the appellants in his own methodical and systematic way had made the following submissions. The learned Counsel would maintain that the appellant being a Company, the plea of fraud raised and proved may have to be appreciated in the light of the peculiar facts and circumstances. The learned Counsel also further submitted that the resolution of the Company was misinterpreted by the trial Court and the trial Court could not appreciate all the facts and circumstances of the case in proper perspective. The learned Counsel had pointed out to Exs.B-16, B-17, B-1 and B-4 and also Exs.B-2 and B-5 and further had pointed out to Ex.A-42 and the contents thereof. The learned Counsel further contended that when the close relationship between the parties had been clearly established, the element of fraud can be inferred and always it is not necessary that direct proof is essential. The learned Counsel also commented that the person who had renewed the pronotes had no authority to make such renewal. In a meticulous way, the learned Counsel had taken me through several details of the resolutions, the balance sheets, the relevant entries and also the auditors report, the role of Damodaraiah, if any, in the episode and several other aspects relating thereto as can be seen in Exs.A-11, A-12, A-13 and A-27. The learned Counsel also had brought to my notice about the filing of the Company Petition No. 1/79 and had contended that the scope and ambit and the relief prayed for in the said Company Petition are totally different from the relief prayed for in the present suits. The learned Counsel also contended that the relief which had been prayed for in the present suits could not have been granted by the Company Court under any one of the provisions of the Indian Companies Act, 1956. The learned Counsel further commented that these are non-secured creditors and the conspicuous non-reference relating to these amounts in the balance sheets will definitely point out the element of fraud or at any rate the same can be inferred. Reliance also was placed on Leonard Biermans Workers'' Union Vs. Second Industrial Tribunal and Others, , AIR 1948 168 (Privy Council) HARI SINGH Vs. RATTAN SINGH AIR 1925 LAH 242. The learned Counsel also commented about the non-production of the account books and adverse inference to be drawn in this regard. It was also pointed out that Ex.A-41 legal opinion was sought by the persons in management but it is pertinent to note that Ex.A-42 was not produced before the concerned Advocate and hence the legal opinion was given in such a way. The learned Counsel also had drawn my attention to Exs.A-9 and A-10 and also made a reference to Ex.A-6. It was also further contended that when the plea of fraud is established, the Court is having power to recall such Judgment or order vitiated by fraud. Reliance also was placed on Indian Bank Vs. M/s. Satyam Fibres (India) Pvt. Ltd., , S.P. Chengalvaraya Naidu (dead) by L.Rs. Vs. Jagannath (dead) by L.Rs. and others, , Asharfi Lal Vs. Smt. Koili (dead) by L.Rs., and Andhra Pradesh Scheduled Tribes Employees Association Vs. Aditya Pratap Bhanj Dev and Others, . The learned Counsel also pointed out that only Photostat copies of the earlier pronotes had been produced and the originals had not been produced and had drawn my attention to Exs.B-1 to B-6. The learned Counsel also had pointed out and commented about Ex.A-37 and Ex.A-38. It was also further contended that if the over-all facts and circumstances of the case are taken into consideration, an inference can be drawn about the non-renewal of the pronotes or atleast the discharge of the pronotes. In view of the close relationship between the parties, the parties had planned to have unlawful advantage by playing fraud in obtaining exparte decrees as against the Company. The learned Counsel also had drawn my attention to Section 17 of the Indian Contract Act and also Section 44 of the Indian Evidence Act. The learned Counsel further had drawn my attention to paragraphs 7 to 28 of the plaint where all the particulars relating to the plea of fraud had been narrated in detail and thus there is sufficient compliance of Order 6 Rule 4 of the Code of Civil Procedure. Ultimately, with all vehemence it was contended that the whole approach the trial Court in appreciating both the oral and documentary evidence is totally wrong and in view of the conduct of the Board of Directors, the relationship with the creditors and the non-production of the account books and several important aspects including the resolutions and the balance sheets relating to the management of the affairs of the Company, the only possible inference that can be drawn is that at the relevant time, the Company had suffered exparte decrees only because of the fraud played and hence the trial Court is not justified in negativing the relief to the appellant/plaintiff Company in the aforesaid suits.
Sri M.V. Durga Prasad, the learned Counsel in his own elaborate style had commenced the submissions pointing out that a Company Petition was filed virtually with the same allegations and the same was withdrawn. The learned Counsel further pointed out that there are no specific allegations relating to the fraud as contemplated by Order 6 Rule 4 of the Code of Civil Procedure. Even otherwise, the allegations relating to the relationship of the parties and the resolution, the contents thereof and also the balance sheets, by themselves cannot be taken as if fraud had been established. At any rate, it is not the case of the other side that the plaintiff is a party to the said fraud or irregularity. At the best, it can be said that these are the irregularities relating to the internal management or indoor management of the affairs of the Company and hence the very remedy and the relief prayed for are totally misconceived. The learned Counsel also further had drawn my attention to Sections 17, 25 and 238 of the Indian Contract Act and had pointed out that PW-1 is none other than the brother-in-law of one K.L.N. Prasad who had prosecuted these litigations for certain obvious and extraneous reasons which cannot be said to be bonafide litigations. The learned Counsel had taken me through the evidence of PW-1, the brother-in-law of K.L.N. Prasad and also other evidence available on record. An attempt was made to convince the Court that the very withdrawal of the Company Petition without the leave of the Court based on the same allegations though the relief prayed for may be different, will definitely operate as res judicata. The evidence of DW-1 and DW-2 also had been pointed out in detail and elaborate arguments had been advanced relating to the evidentiary value of the account books and also the balance sheets. The learned Counsel had drawn my attention to the relevant provisions of the Indian Companies Act and also several other important aspects including the legal opinion and also had referred to Exs.A-37, A-38 and Exs.B-1 to B-4 and also Exs.B-16 to B-19. At any rate, the burden of proof is on the other side to establish the plea of fraud and they had miserably failed in establishing the same. No doubt, the learned Counsel had pointed out about several factual aspects which are more or less affairs relating to the internal management of the Company. Commenting about the concept of fraud, element of fraud and the proof of fraud, the learned Counsel contended that whether it is a civil case or a criminal case, the element of fraud has to be established beyond all reasonable doubt, and the proof of fraud to vitiate a Judgment made by a competent Court should be of a higher degree and definitely such standard of proof had not been discharged and hence the trial Court is well justified in giving such findings ultimately dismissing the suits. The learned Counsel also had made a reference to Sections 18 and 19 of the Limitation Act, 1963 and also Section 17 of the Indian Contract Act and Section 44 of the Indian Evidence Act and had placed reliance on MALAYAN TOBACCO DISTRIBUTORS LIMITED Vs. THE UNITED KINGDOM TOBACCO Co. 1934 66 M.L.J. 588, Bai Chanchal Vs. Ganpatram Jadavji and Others, , MANGILAL Vs. MAHMOOD AHMED 1980 (1) AN.W.R.295, VENKANNA Vs. VENKAMMA 1979 (2) ALT 70 (DB), HANSRAJ Vs. DEHRA DUN M.E.T. Co., AIR 1940 PC 98, Varanasaya Sanskrit Vishwavidyalaya and Another Vs. Dr. Rajkishore Tripathi and Another, , KUMAR KRISHNA ROHATGI Vs. STATE BANK OF INDIA 1980 (50) COMPCAS 722, NEWTON Vs. BIRMINGHAM SMALL ARMS COMPANY LIMITED 1906 (2) CH D 378, Godhara Borough Municipality Vs. Godhara Electricity Co. Ltd., , KRISHNASWAMY Vs. STRESSED CONCRETE CONSTRUCTIONS (P) LIMITED 1964 (34) COMPCAS 6, KASHINATH Vs. NEW AKOT GINNING AND PRESSING CO. LTD. 1950 (20) COMPCAS 225, Padma Bewa Vs. Krupasindhu Biswal and Others, , Sri Ramdas Motor Transport Ltd. and Others Vs. Tadi Adhinarayana Reddy and Others, , Kadirvelu Nainar Vs. Kuppuswami Naicker,
After hearing both the learned Counsel at length and also on perusal of the oral and documentary evidence, and in the light of the common evidence, I am of the view that the following common Points arise for consideration in these Appeals:
Whether the decree in O.S. No. 242/77 on the file of Subordinate Judge, Vijayawada is liable to be set-aside being vitiated by fraud and collusion ?
Whether the decree obtained in O.S. No. 63/77 on the file of Subordinate Judge, Gudivada is vitiated by fraud and collusion and is liable to be set-aside ?
Whether the plaintiff-Company is entitled to the relief prayed for in these suits ?
If so, to what relief the plaintiff-Company is entitled to ?
Points 1 to 3, for the purpose of convenience, can be answered together.
Several of the factual aspects in the case are not in dispute. It is not in dispute that one Koduru Ramabrahmam, one of the Directors of the plaintiff-Company, hereinafter referred to as "Company" in short, is the father of Venkata Seshagiri Rao and Sivaramakrishna Prasad and the said Ramabramham had deposited certain amounts belonging to his sons in the plaintiff-Company. One Koduru Madhusudhan Rao, who was the Secretary of the Company in the year 1949 had passed receipts on behalf of the Company evidenced by Exs.B-6 to B-19. Since the Company was unable to pay the amounts deposited by the sons of the said Ramabrahmam, the then Secretary of the Company Madhusudhan Rao, executed promissory note on 1-1-1952, evidenced by the originals of Exs.B-1 and B-4 for Rs.20,164-12 and Rs.19,958/- and on 23-12-1954 the said Madhusudhan Rao, representing the Company had renewed the debts by executing two promissory notes Exs.B-2 and B-5 and subsequent thereto he had resigned and one Kishan Prasad Choudary was authorized to operate the accounts on behalf of the Company under the resolution dated 12-12-1957, marked as Ex.A-42. In pursuance thereof, the said Kishan Prasad Chuodary had renewed the debts by executing two pronotes Exs.B-3 and B-6 dated 23-12-1957 in favour of the sons of Ramabrahmam and subsequent thereto the said Kishan Prasad Choudary had made certain payments and had also made endorsements on the said promissory notes and the said Kishan Prasad Choudary executed two promissory notes on 31-7-1974 under the originals of Exs.B-14 and B-15, one in favour of the 1st defendant in O.S. No. 342/80 and another in favour of the 1st defendant in O.S. No. 301/81, and inasmuch as the Company was not paying the said amounts, after issuing notice, the suits were instituted. It may also be pertinent to note that the matter was referred to the legal advisor one Sri K. Purushotham, Advocate, Gudivada, who had given his opinion dated 15-7-1977 after examining the material, as Ex.A-41, no doubt had opined that inasmuch as the promissory notes were executed on behalf of the Company, the Company is bound to pay the said debt, and in view of the same, the suits were not contested and accordingly the decrees were obtained which are being assailed in the present suits as being obtained by fraud or collusion and not binding on the Company for several reasons which had been narrated in detail in the pleadings filed by the Company in this regard.
The substance of the allegations relating to the plea of fraud or plea of collusion in nut-shell can be stated as follows:
Madhusudhan Rao and Hanumara Kishan Prasad Choudary, have no power to operate the accounts, execute the promissory notes or create liability and placing such liability on the plaintiff Company and even otherwise in view of the facts and circumstances of the case, the alleged debts, if any, should be deemed to have been discharged. The balance sheets of the Company do not reflect the liability of the Company relating to the subject matter of the aforesaid suits. Further, Ramabrahmam and Kishan Prasad Choudary, being close relatives had executed the promissory notes so as to fasten the liability on the plaintiff-Company with a view to make profit out of the same. Subsequent thereto there were disputes between the Board of Directors and Madhusudhan Rao and as can be seen from the facts one of the groups had been led by Sri K.L.N. Prasad and as a part of the said scheme C.P. No. 1/79 was filed seeking the relief of supersession of the Board of Directors and appointment of an Administrator and a copy of the said petition is marked as Ex.A-5. There was a general body meeting on 25-1-1979 for the purpose of approving the balance sheets and decree debts and the minority shareholders have opposed the payments and in fact had noted their dissent also and the resolution in the minutes book has been marked as Ex.A-6. A new Board of Directors had been elected in the subsequent general body meeting under Ex.A-4 and in the Board of Directors meeting on 25-6-1980 under Ex.A-7, a resolution was adopted requesting Rama Krishna Babu who was examined as PW-1, to take appropriate action or avoiding the said decrees. Further, in C.P. No. 1/79, notice was given for production of documents, marked as Ex.A-11 and certain other books alone were specified to be available, as can be seen from Ex.A-12. No doubt, serious comments had been made relating to non-production of certain of the account books and several other factual aspects and the surrounding suspicious circumstances also relating to the non-production thereof. The learned Counsel for the appellant had stressed on this point and had contended that this aspect itself is sufficient to establish the element of fraud and also the plea of collusion.
Before adverting to the other details, both factual contentions and the legal contentions, raised by both the parties, at the threshold, Sri M.V. Durga Prasad the learned Counsel representing the respondents in these Appeals had raised a contention that the present suits are not at all maintainable, being barred by the principles of res judicata. The learned Counsel contended that in view of the filing of C.P. No. 1/79 and also withdrawal of the same without even seeking permission or liberty to institute other legal proceedings, definitely the suits are barred by Section 11 of the Code of Civil Procedure, or at any rate by the general principles of res judicata. C.P. No. 1/79, as can be seen from the contents, had been filed under Sections 397 and 398, r/w. Section 399 of the Companies Act, 1956. In Shanti Prasad Jain Vs. Kalinga Tubes Ltd., , it was held that the law has not defined what is "oppression" for the purpose of Section 397 and it is left to Courts to decide on facts of each case whether there is such oppression calling for action under the said provision. Chapter VI of the Companies Act, 1956 deals with Prevention of oppression and mismanagement and all these provisions falling under this Chapter deal with the aforesaid aspect only. The scope and ambit of the Company Petition, as can be seen from the contents of the Company Petition, and also the reliefs prayed for, are different from the suits which had been instituted raising the pleas of fraud and collusion. It may be that certain of the facts and certain of the pleadings and allegations may be common, but that itself cannot be a ground to say that the present suits are barred by the principles of res judicata. In JACOB CHERIAN Vs. K.N. CHERIAN 1973 (43) C.C.235, while dealing with the effect of the withdrawal of a petition without obtaining the leave of the Court under Sections 397 and 398 of the Companies Act, 1956, it was held that if a petition filed under Sections 397 and 398 of the Companies Act, 1956 is unconditionally withdrawn, the petitioner, by virtue of Order 23 Rule 1 of the Code of Civil Procedure, is precluded from instituting a fresh petition on allegations upon which the earlier petition was founded. However, in the present case, the suits are instituted questioning the passing of the decrees on the ground of fraud and also on the ground of collusion and several allegations had been made in the respective pleadings and hence, I am not inclined to accept the preliminary objection raised by the learned Counsel for the respondents Sri M.V. Durga Prasad that the suits are not maintainable at all in view of the operation of the bar of res judicata.
The next preliminary aspect which had been canvassed with all seriousness by the learned Counsel for the respondents Sri M.V. Durga Prasad is that the pleadings filed in both the suits by the appellant/plaintiff-Company are not in conformity with Order 6 Rule 4 of the CPC and placed reliance on Padma Bewa Vs. Krupasindhu Biswal and Others, . It may be appropriate to have a look at Order 6 Rule 4 of the CPC which reads as follows:
"Particulars to be given where necessary. - In all cases in which the party pleading relies on any misrepresentation, fraud, breach of trust, willful default or undue influence, and in all other cases in which particulars may be necessary beyond such as are exemplified in the forms aforesaid, particulars (with dates and items if necessary) shall be stated in the pleading."
A careful reading of the pleadings definitely go to show that several allegations are made which are suggestive of either the plea of fraud or plea of collusion in view of the relationship and also in the light of the balance sheets, the accounts, the resolutions and several other affairs more concerned with the internal management and also the indoor management of the affairs of the subject Company. In the decision referred (13) supra, it was held that in case of allegations of collusion implying some kind of fraud it is not enough to state in general terms that there was collusion without more particulars. In Subhas Chandra Das Mushib Vs. Ganga Prosad Das Mushib and Others, while dealing with the aspect of plea of undue influence and also plea of collusion it was held that the word "collusion" means secret agreement for illegal purposes or a conspiracy and implies that a man does something evil designedly. In Bishundeo Narain and Another Vs. Seogeni Rai and Jagernath, it was held that in cases of fraud, undue influence and coercion, the parties pleading it must set forth full particulars and the case can only be decided on the particulars as laid and there can be no departure from them in evidence and general allegations are insufficient even to amount to an averment of fraud of which the Court had to take notice however strong the language in which they are couched may be and the same applies to undue influence and coercion. In Shri Krishnan Vs. The Kurukshetra University, Kurukshetra, it was held that where a person on whom fraud is committed is in a position to discover the truth by due diligence, fraud is not proved and it is neither a case of suggestio falsi or suppresio veri. No doubt, strong reliance was placed by both the counsel Sri M. Chandra Sekhar Rao and also Sri M.V. Durga Prasad on the decision of the Apex Court referred (6) supra.
A careful reading of the allegations made in the respective pleadings, in my considered opinion, are sufficient particulars relating to the pleas raised and hence the respective pleadings are in conformity with Order 6 Rule 4 of the Code of Civil Procedure. It is one thing to say that the pleading itself is defective for want of all particulars and it is yet another thing to say that a party was not successful in establishing the same and hence he is bound to fail. The latter part relating to proof becomes operative at a later point of time and hence I am not inclined to accept with the yet another serious objection raised by Sri M.V. Durga Prasad to the effect that the pleadings of the appellant/plaintiff-Company are not in conformity with the provisions of Order 6 Rule 4 of the Code of Civil Procedure.
After answering the two preliminary contentions or objections which had been advanced with all vehemence by the learned Counsel for the respondents, the next crucial and important question which has to be considered is whether the Judgments and decrees of the trial Court dismissing both the suits are liable to be interfered with and that the findings recorded by the trial Court are not in accordance with law or the said findings are liable to be reversed in the Appeal on the grounds which had been averred in the pleadings and also in view of the evidence let in by the respective parties.
At the outset, I may point out that even if the allegations made in the respective plaints and also the evidence let in by the appellant/plaintiff-Company in toto is carefully scrutinized, in substance the stand taken by the appellant/plaintiff-Company is that all was not well with the internal management relating to the affairs of the Company and in view of the fact that certain persons who were at the helm of affairs of the Company at a particular point of time to have some unlawful advantage, brought the transactions into existence and ultimately made the Company to suffer the decree and hence fraud is established. A careful scrutiny of both oral and documentary evidence clearly negatives any positive act on the part of the respondents in these present Appeals of having participated in any act of fraud, and on the contrary what had been suggestively pleaded and established is that in view of the relationship between certain of the parties, these transactions came into existence and the persons who were not authorized had further proceeded with these transactions and hence the appellant/plaintiff-Company cannot be fastened with the liability.
In AIR 1941 93 (Privy Council) it was held that fraud, like any other charge of a criminal offence whether made in civil or criminal proceedings, must be established beyond reasonable doubt and a finding as to fraud cannot be based on suspicion and conjecture. The decision in Union of India (UOI) Vs. Chaturbhai M. Patel and Co., also is to the above effect only. In the Law of Contracts, by me, 2001 Edition, at page 187, while dealing with the aspect of fraud, I had stated:
"Fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another."
It is needless to point out that fraud had been defined u/s 17 of the Indian Contract Act, 1872. The learned Counsel for the appellant Sri Chandrasekhar Rao, with all vehemence had contended that in view of the ratio laid down by the Apex Court in the decision referred (5) supra, the prior view relating to the establishment of fraud and avoidance of a decree had definitely undergone a change.
Section 44 of the Indian Evidence Act reads as follows:
"Fraud or collusion in obtaining judgment, or incompetency of Court, may be proved. - Any party to a suit or other proceeding may show that any judgment, order or decree which is relevant under sections 40, 41 or 42 and which has been proved by the adverse party, was delivered by a Court not competent to deliver it, or was obtained by fraud or collusion."
In the decision referred (5) supra, the Apex Court held as follows:
"The High Court in our view, fell into patent error. The short question before the High Court was whether in the facts and circumstances of this case, Jagannath obtained the preliminary decree by playing fraud on the court. The High Court, however, went haywire and made observations which are wholly perverse. We do not agree with the High Court that "there is no legal duty cast upon the plaintiff to come to court with a true case and prove it by true evidence". The principle of "finality of litigation" cannot be pressed to the extent of such an absurdity that it becomes an engine of fraud in the hands of dishonest litigants. The courts of law are meant for imparting justice between the parties. One who comes to the Court, must come with clean hands. We are constrained to say that more often than not, process of the Court is being abused. Property-grabbers, tax-evaders, bank-loan-dodgers and other unscrupulous persons from all walks of life find the Court process a convenient lever to retain the illegal-gains indefinitely. We have no hesitation to say that a person whose case is based on falsehood, has no right to approach the Court. He can be summarily thrown out at any stage of the litigation.
The facts of the present case leave no manner of doubt that Jagannath obtained the preliminary decree by playing fraud on the court. A fraud is an act of deliberate deception with the design of securing something by taking unfair advantage of another. It is a deception in order to gain by another''s loss. It is a cheating intended to get an advantage. Jagannath was working as a clerk with Chunilal Sowcar. He purchased the property in the court auction on behalf of Chunilal Sowcar. He had, on his own volition, executed the registered release deed (Exhibit B-15) in favour of Chunilal Sowcar regarding the property in dispute. He knew that the appellants had paid the total decretal amount to his master Chunilal Sowcar. Without disclosing all these facts, he filed the suit for the partition of the property on the ground that he had purchased the property on his own behalf and not on behalf of Chunilal Sowcar. Non-production and even non-mentioning of the release deed at the trial tantamounts to playing fraud on the court. We do not agree with the observations of the High Court that the appellants-defendants could have easily produced the certified registered copy of Exhibit B-15 and non-suited the plaintiff. A litigant, who approaches the court, is bound to produce all the documents executed by him which are relevant to the litigation. If he withholds a vital document in order to gain advantage on the other side then he would be guilty of playing fraud on the court as well as on the opposite party."
Further, strong reliance also was placed, relating to the concept of fraud and the required proof thereof, on the decision referred (7) supra.
No doubt Sri M.V. Durga Prasad had placed strong reliance on the decision referred (9) supra wherein it was held that where a decree or award is passed exparte, the alleged leading of false evidence or tendering of forged documents cannot be said to be a fraud on Court unless it is shown that the leading of that false evidence had the effect of preventing the plaintiff from putting his case before the Court. In the decision referred (10) supra, while dealing with Section 44 of the Indian Evidence Act it was held :
"It is true it is dangerous to allow any fresh suit to be brought by an unsuccessful litigant to set aside the decree passed against him on the ground that his opponent had imposed on the Court by letting in perjured evidence. The passion for litigation wherever it exists in this country is likely to turn into almost incurable mania and the parties might go on alternately ad infinitum. Perjuries, falsehoods, frauds, when detected, must be punished and punished severely, but in their desire to prevent litigant parties from obtaining any benefit from such foul means the Courts must not forget the evils which may arise from opening such new sources of litigation, amongst such evils not the least being that it would be certain to multiply indefinitely the mass of those very perjuries, falsehoods and frauds."
In the decision referred (11) supra, this Court dealt with the scope and ambit of Section 44 of the Indian Evidence Act vis-�-vis the bar of res judicata to challenge an earlier proceeding by a minor after attaining majority. In the decision referred (4) supra, it was no doubt held that the Commission has inherent power to recall its Judgment and order if it is found to be obtained by fraud, forgery as fraud amounts to abuse of process of the Commission. Reliance also was placed on the decision referred (6) supra, wherein it was held that Section 44 of the Indian Evidence Act would be attracted only if inference of fraud or collusion could be drawn from the gross negligence in the case of a decree against a minor. In the decision referred (2) supra, the Privy Council held that a decree obtained by fraud and collusion does not operate as res judicata. In PURAN Vs. CHARANJIT SINGH 2002 (3) ICC 173, it was held that an averment of the appellant that he signed on blank paper and not a promissory note cannot be accepted as fraud and misrepresentation and the same has to be proved.
It is no doubt true that fraud will vitiate a proceeding provided the same is pleaded and proved in accordance with law. In the present suits instituted by the Company, the Company intends to avoid the decrees on certain allegations, which the Company contends that these allegations will constitute fraud. The standard of proof required in such cases where the parties intend to avoid the Judgments and decrees made by competent Courts should be definitely of a higher order and unless the proof is clear, the Courts will not be inclined to interfere in such matters. The allegations of fraud should definitely be of a serious nature, which may touch upon the essentials and also should go to the very root of the matter and hence the mere general allegations may not be sufficient in such cases. In these Appeals, with all vehemence, no doubt, elaborate arguments had been advanced by the learned Counsel representing the appellant/Company relating to the nature of the resolution Ex.A-42, the nature of legal opinion Ex.A-41 and also the non-production of some account books, the evidentiary value of the balance sheet and the relationship of the parties. I had carefully gone through both the oral and documentary evidence adduced by both the parties and several of the details pleaded and also the evidence let in by examining PW-1 and PW-2 and Ex.A-1 to A-42, which relate to the internal affairs of the Company. Even if all these allegations, for arguments sake, are to be accepted as proved, at the best it can be said that these allegations relate to the improper management of the affairs of the Company or the handling of the affairs of the Company by certain persons concerned with the affairs of the Company and the remedies are provided for under the Indian Companies Act, 1956 for such problems.
Now, coming to the facts of the present case, it is to be seen whether the findings recorded by the trial Court are in accordance with law or the said findings are liable to be interfered with in these Appeals. No doubt, the learned Counsel for the appellant in both the Appeals have seriously commented about the findings recorded by the trial Court relating to Ex.A-42 and had contended that the trial Court had misdirected itself while appreciating the contents of Ex.A-42. It is no doubt true that Ex.A-42 is of general nature. It may be that Ex.A-42 was not brought to the notice of the learned Advocate who had given opinion Ex.A-41. I had gone through carefully both Exs.A-42 and A-41 and the production or non-production of Ex.A-42 would not have altered the situation in any way and in my considered opinion the learned Advocate who had given the opinion Ex.A-41 gave the same only in accordance with law. I do not think that any further comment is necessary as far as Exs.A-41 and A-42 are concerned.
The expression "Advocate" is a Latin expression, which is normally understood as a person who pleads for others. A lawyer is an integral part of administration of justice and repeatedly Courts have been observing about the nature of the profession and the dignity of the profession and also the responsibilities of the Advocates while giving opinions as well. In R.D. Saxena Vs. Balram Prasad Sharma, the Apex Court had observed that a social duty is cast upon the legal profession to show the people beacon light by their conduct and actions. In that view of the matter, especially in the light of the contents of Ex.A-41, I am convinced that the learned Advocate had expressed the correct legal opinion in the facts and circumstances of the case and hence on that ground it cannot be said the element of fraud is involved.
On behalf of the appellant/plaintiff-Company the Secretary of the Company Yerneni Rama Krishna Babu was examined as PW-1 and another Kanuri Gangadhara Rao was examined as PW-2 and the defendants in O.S. No. 342/80 were examined as DW-1 and DW-2 respectively and had marked Exs.B-1 to B-20. It is not in controversy that Ramabramham, the father of the respondents had made deposit in the Company on their behalf when they were minors and the same is evidenced by Exs.A-37 and A-38. Sri Madhusudhan Rao, who was the then Secretary had issued receipts which were marked as Exs.B-16 to B-19. The memorandum and articles of association published by the Company was marked as Ex.A-34, and Article 4(b) clearly specifies that the Secretary or the Treasurer has the power of borrowal and issue of receipts and hence it cannot be said that the contention that Madhusudhan Rao had no authority cannot be accepted. The trial Court had in fact discussed all these aspects in detail, including the ledger of 1957-58 wherein the accounts were brought forward and also the relevant documents Exs.A-39 and A-40 had been referred to. The evidence of PW-1 and PW-2 and also DW-1 and DW-2 also had been dealt with in detail by the trial Court. Elaborate arguments had been advanced relating to the internal affairs of the Company to convince the Court that all was not well with the affairs of the Company and hence from all these circumstances fraud can be inferred. No doubt, the relevant balance sheets had been pointed out and almost all the documents had been touched by the learned Counsel for the appellant to convince the Court that the plea of fraud had been established.
Before discussing the other oral and documentary evidence, it may be appropriate to have a look at certain provisions of the Companies Act, 1956 in this regard. Section 210 of the Companies Act, 1956 deals with Annual accounts and balance sheet. Section 211 of the said Act deals with Form and contents of balance sheet and profit and loss account. Section 215 of the said Act deals with authentication of balance sheet and profit and loss account. In the decision referred (1) supra, the meaning of the balance sheet had been dealt with as follows:
"A Balance Sheet is a statement prepared from records kept on the basis of double entry showing, as at a given date, the sources from which an enterprise derived its funds (for example, from share-holders, creditors, partners or proprietors) and he various ways in which these funds were invested or applied (for example, in fixed assets, current assets, investments, loans, and advances and other claims). It is a statement in a summarized form of the balances of the ledger accounts remaining after all revenue and expense accounts have been closed by transfer to revenue or profit and loss account."
Reliance also was placed on a decision of Chancery Division referred (15) supra. In the decision referred (14) supra, it was held by the Apex Court as follows:
"Under the general principles of law, when an agent borrows money for a principal without the authority of the principal, but the principal takes the benefit of the money so borrowed or when the money so borrowed has gone into the coffers of the principal, the law implies a promise to pay by the principal. There is nothing in law which makes this principle inapplicable to the case of a joint stock Company. In cases where the directors or the managing agents borrow money without there being authorization from the Company, if the money has been used for the benefit of the Company, the Company cannot repudiate its liability to repay."
Strong reliance also was placed on HI-TECH GEARS LIMITED Vs. YOGI PHARMACY LIMITED 1998 (94) COMPCAS 250 and also the decision referred (17) supra.
The stand taken by the learned Counsel representing the appellant/Company is that inasmuch as the balance sheets do not reflect these outstanding dues, an inference has to be drawn that they had been either discharged or there is no subsisting liability in relation to the Company. At the outset it may be stated that the Company had not taken steps to get the decrees set-aside by initiating proceedings before the same Courts, but no doubt had thought of filing a Company Petition and also instituting the present suits to avoid decrees. Apart from Ex.A-42, even in Ex.A-30, dated 9-9-1959, it was mentioned that the amounts due to the respondents had been specified in the balance sheets. Ex.A-31 also in a way, comes to the aid of the respondents. A demand had been made by the respondents issuing registered notices to the Directors on 29-6-1977, evidenced by Exs.B-9 to B-12, and the Board of Directors of the Company had convened a meeting on 15-7-1977 and the Company thought it fit to take the legal opinion and the legal opinion Ex.A-41 is self-explanatory. In fact, I had already expressed my opinion relating to Exs.A-41 and A-42 supra. The Board of Directors had passed a resolution Ex.A-9, not to contest these matters in the light of the aforesaid facts. No doubt, subsequent to the institution of the suits, on 22-12-1977 a resolution was passed under Ex.A-10 to clear off the decree debts and no doubt Kishan Prasad Choudary died on 5-6-1977 who had been acting as the Managing Director till then and subsequent thereto on 25-2-1979 Director was Co-opted in the place of the said Kishan Prasad Choudary. As can be seen from the sequence of events, in view of certain disputes which arose between the shareholders, no doubt, a Company Petition was filed and the same had been withdrawn and the said facts already discussed supra, need not be repeated again. It is no doubt true that the Board of Directors had taken note that the decrees were made exparte and the Company is not liable to pay and had passed resolutions to question the said actions and accordingly the present Suits were instituted which were ultimately disposed of and the said matters are carried by way of the present Appeals.
The evidence of PW-1 and PW-2 is available on record, apart from the documentary evidence referred to supra. As against this evidence, the evidence of DW-1 and DW-2 and the documentary evidence adduced by the respondents/defendants also is available on record. The evidence of PW-1 and PW-2 substantially is one and the same and they deposed about the series of events and other documents which had been marked on their behalf. PW-1 - Ramakrishna Babu, the Secretary of the Company also is a shareholder of the Company. He narrates about all the events of the Company. PW-1 further deposed that the Directors were elected at the General Body meeting in the Annual General Body Meeting conducted on 27-5-1980 and the Auditor''s report for the plaintiff-Company was published on 20-12-1981 together with the balance sheets of the Company for the years 1973-74, 1974-75 and 1975-76. Ex.A-1 is the Auditor''s report with balance sheet. PW-1 also deposed that Sri K.L.N. Prasad and some other shareholders have taken objection to the contents of the Auditor''s report and had raised an objection to the decrees made in O.S. No. 242/72 and O.S. No. 63/77 on the file of Subordinate Judge, Vijayawada and Subordinate Judge, Gudivada, respectively. The certified copies of the decrees were marked as Exs.A-2 and A-3. PW-1 further deposed that they had raised an objection contending that these decrees were not found in the account of the plaintiff-Company and he had narrated about all the details including the relationship between the parties. PW-1 had deposed that Koduru Ramabrahmam is the brother of Madhusudhan Rao and he has two sons Venkata Seshagiri Rao and Sivaramakrishna Prasad and the said Venkata Seshagiri Rao is the 1st defendant in O.S. No. 301/81 and that Sivarama Krishna Prasad went in adoption to Smt. Maganti Gulabi Pushpanjali and hence his surname was changed from Koduru to Maganti. PW-1 also deposed about the series of events relating to the promissory notes, the renewal thereof and all other aspects in detail. PW-1 also deposed that Madhusudhan Rao acted as Secretary even prior to 1952 and he has resigned in 1957. PW-1 deposed about the death of Ramabramham also and he also narrated about the details of filing the Company Petition marked as Ex.A-5. PW-1 further deposed about the other documentary evidence available on record, Ex.A-6 to Ex.A-42 and had specifically pointed out how he justifies his stand that the said decrees are not binding on the Company since those debts are not mentioned in the balance sheets or the Company accounts. The other details which had been narrated by PW-1 and also by PW-2, mostly relate to several documents, which are all proceedings of the plaintiff-Company and as already observed by me supra, these are all documents which relate to the internal management and internal affairs of the Company as such.
On a careful scrutiny of the evidence of PW-1 and PW-2, the strong contention which the plaintiff-Company intended to putforth is that in view of the close relationship between the respondents and the persons who were at the helm of affairs of the management of the Company at the relevant point of time, fraud can be inferred from the facts and circumstances of the case. The oral evidence of PW-1 and PW-2 had been discussed in detail apart from the evidence of DW-1 and DW-2 by the trial Court. No doubt, strong reliance was placed on Ex.A-9, A-13 to A-17, A-18 to A-21, A-22 to A-27, A-34, A-35 to A-39 and also Ex.A-41 and A-42. The absence of a reference in relation to these decrees or debts in the balance sheets had been over-stressed. Reference also was made to the other documentary evidence. As against the said evidence, the evidence of DW-1 and DW-2 is available and documents Exs.B-1 to B-20 were marked. No doubt, the non-production of the account books also had been stressed on the ground that adverse inference has to be drawn in the facts and circumstances of the case. The oral evidence of DW-1 and DW-2 is totally in support of their respective contentions and no doubt a comment also was made about the non-production of the original documents. But, I do not think, at this distant point of time, that when the decrees are being challenged by instituting the suits, the non-production of the originals will be of any consequence. Ex.B-1 is a Photostat copy of the pronote executed by Koduru Madhusudhan Rao on behalf of the Company in favour of Sivarama Krishna Prasad. Likewise, Exs.B-2, B-3, B-4 B-5 and B-6 also were marked. Ex.B-7 is the office copy of the registered notice dated 29-6-1977. Ex.B-8, B-9, B-10, B-11 and B-12 are the postal acknowledgements. Likewise, Ex.B-13 is the office copy of the notice issued by the counsel on behalf of the Veerabhadrarao. Ex.B-14 is the certified copy of the pronote executed in favour of Maganti Sivarama Krishna Prasad by Kishan Prasad Choudary. Ex.B-15 is a certified copy of the promissory note executed by Kishan Prasad Choudary in favour of Venkata Seshagiri Rao. Ex.B-16 is the receipt for Rs.14,000/- issued by Madhusudhan Rao. Ex.B-17 is the receipt for Rs.11,000/-. Ex.B-18 is the receipt for Rs.455/-. Ex.B-19 is the receipt for Rs.360/-. Ex.B-20 is the notice issued by Advocate of the 2nd defendant to the plaintiff to produce documents.
As can be seen from the findings recorded by the trial Court, the trial Court in a meticulous fashion had appreciated the oral and documentary evidence - the evidence of PW-1 and PW-2 and DW-1 and DW-2, at length, and had arrived at the conclusion that the appellant/plaintiff-Company had miserably failed to establish the plea of fraud or plea of collusion, as the case may be, in the facts and circumstances of the case. As can be seen from the series of events, for sufficiently a long time these questions were not raised at all. But evidently, for certain reasons at a later point of time, the present dispute relating to the binding nature of these debts or decrees on the Company had been raised which had ultimately paved the way to the present litigations. It is needless to point out that in all cases where exparte decree is suffered by a party, it cannot be inferred that there is an element of fraud or collusion. It may be that there may be certain genuine cases where the parties may not be inclined to contest the matter, or the contest of a matter only will be a formality and no purpose will be served by contesting such a matter. I had already referred to Ex.A-41 - opinion given by a learned Advocate after verifying the facts and circumstances, and I do not think that at this distant point of time, the well considered legal opinion of a learned Counsel can be faulted. Equally so, the conduct of the persons who were at the helm of affairs of the Company at the relevant point of time also cannot be viewed with any suspicion and as can be seen from the series of events, I do not think that the mere fact that the parties are relatives, it will be suggestive of existence of an element of fraud. It may be that in certain circumstances where if all other facts point out towards the establishment of fraud, the relationship between the parties also may assume some importance. But in a case of this nature, where almost all the allegations made, both in the pleadings and also in the evidence of PW-1 and PW-2 relate to the internal affairs of the Company, as far as the third parties are concerned their rights cannot be defeated on any of the grounds which had been alleged and spoken to by PW-1 and PW-2. Hence, the findings recorded by the trial Court, both on appreciation of questions of fact and questions of law, are not liable to be interfered with and accordingly the said findings are confirmed.
In view of the findings recorded by me supra, I have no hesitation in arriving at the conclusion that these Appeals are devoid of merits and accordingly both the Appeals are dismissed, with costs.