P GYANCHANDER vs K PARVATHALU

-AGGRIEVED by the order in C. D. No. 963 of 2004 on the file of District Forum-I, Hyderabad, opposite party No. 5 preferred this appeal.

THE brief facts as set out in the complaint are that opposite party No. 1 is the chit fund company of which opposite party No. 2 is the Managing Director, and opposite parties 3, 4 and 5 are Directors and the complainant joined as a member of opposite party No. 1 chit series No. SP 42 BDH-47 for Rs. 1,00,000 on the basis of daily subscription of Rs. 200 for 500 days. The complainant paid a total amount of Rs. 81,298 from 23. 12. 2001 to 29. 4. 2003 and in the month of May 2003, the complainant wanted his money back for the purpose of the marriage of his daughter and requested opposite party No. 1 to settle and pay the said chit amount. In spite of repeated requests of the complainant, opposite party No. 1 informed the complainant that they are facing financial problems and agreed to pay a total amount of Rs. 88,459 towards full and final settlement and issued eight post dated cheques to be encashed during the period from October 2003 to December 2003. The complainant submitted on presentation of the said cheques, they were dishonoured, he informed the said fact to opposite parties and requested to pay the agreed amount but opposite parties have failed to pay the same. Therefore, the complainant got issued a legal notice dated 24. 6. 2004 to the opposite party No. 1 and though it received the notice, failed to give any reply. Hence the complaint for a direction to the opposite parties to pay an amount of Rs. 88,459 with 24% interest from May, 2003 till the date of payment together with compensation of Rs. 50,000 and costs of Rs. 5,000. Notices were sent to opposite parties and there was no representation and they were called absent and were set ex parte.

Based on the evidence adduced i. e. Exs. A1 to A12 and the pleadings put forward, the District Forum allowed the complaint in part directing opposite party Nos. 1 to 5 jointly and severally to pay an amount of Rs. 88,459 with 12% interest from 1. 1. 2004 to 18. 7. 2004 and at 9% p. a. from 19. 7. 2004 till the date of payment together with costs of Rs. 2,000.

AGGRIEVED by the said order, opposite party No. 5 preferred this appeal. The learned Counsel for the appellant submitted that the District Forum erred in directing the appellant herein to pay the amount along with other respondents and submitted that he was no way connected with respondent No. 2 herein and he was not a Director on the date of filling of the above C. D. and he was never an active Director and was only a name sake Director and resigned the said company on 3. 2. 2003 and Form No. 32 was also filed before the Registrar of Companies and filed the certified copy and hence he is not liable to pay any amount that is payable by respondent No. 1 company. He also submitted that the appellant is neither related to the family of Managing Director or other Directors of the said company and he is absolutely a stranger to the said company and submitted that no Director of a company is personally liable for any dues that are payable by the complainant. He further submitted that he is in no way connected with the chit subscriber nor connected with the transaction admittedly made when the complaint was filed and as such fixing the liable on him to pay the amount is illegal. He submitted that respondent No. 2 cheated the appellant and made him believe that he is settling the matter with the complainant. He submitted that he is no way connected with the alleged cheques and he is not a signatory to the said cheques and no way concerned with the liability of respondent No. 2 company and prayed to allow the appeal.

WE observe from the record that the complainant joined in opposite party No. 1 chit and paid a total amount of Rs. 81,298 from 23. 12. 2001 to 29. 4. 2003. It is the case of the complainant that when he wanted his money back for the purpose of his daughter''s marriage, in spite of repeated requests, opposite parties agreed to pay an amount of Rs. 88,459 towards full and final settlement and even issued 8 posted-dated cheques to be encashed from October, 2003 to December, 2003. We find force in the contention of the complainant that these cheques were dishonoured and the act of the opposite parties in agreeing to pay the total amount and also issuing post-dated cheques and thereafter not honouring them amounts to deficiency of service. It is the case of the appellant/opposite party No. 5 that as on the date of filling of the C. D. , he resigned from the said company on 3. 2. 2003 and Form 32 was also filed before the Registrar of Companies. It is pertinent to note that the complainant joined in the Chit on 23. 12. 2001 and paid the amounts till 29. 4. 2003, during which period the cause of action took place, the appellant was very much a Director of the company. The contention of the appellant that as on the date of filing of the C. D. , he is not a Director and he had resigned from the company is unsustainable on the ground that he was a Director at the time of cause of action i. e. at the time of payment of the amounts by the complainant to opposite party No. 1 company. The other contention of the appellant/opposite party No. 5 that he is not personally liable for any dues that are payable to the complainant is also unsustainable in view of the judgment. We rely on the judgment of the Delhi High Court reported in Ravi Kant and Anr. v. National Consumer Disputes Redressal Commission and Ors. , I (1997) CPJ 271 (DB)=66 (1997) DLT 13 (DB), wherein it was held that: "consumer Protection Act, 1986-Section 27-Whether the principle of ''lifting the veil'' is applicable? (Yes ). The Division Bench held that a penal provision, which as stated above, is applicable to a ''company'' by the Commission in Section 27 must be treated as applicable to those who are officially responsible for the conduct of its affairs. Here, the two petitioners are the directors of each of the two companies. We may also point out that in the Supreme Court Judgment i. e. M. M. I. Ipoh v. I. T. Commissioner, AIR 1968 SC 317, though on facts, the Executive Officer of the Corporation was exonerated, that was not because he could not be legally made liable but because he was factually not proved to be responsible for not obeying the command of the Court. In our view, as per the principle laid down in the above ruling of the Supreme Court, the penal provision in Section 27 of the Act can be applied to the Directors of the Companies, notwithstanding the absence of a specific provision for action against those incharge of or in control of the affairs of the company. It was also held further : We hold that the State Commission and the National Commission were right in refusing to permit the two petitioners, the two sole Directors of the two companies, being, husband and wife-to defend themselves under the cloak of corporate entity and the Commissions were right in lifting the veil and identifying the petitioners as the persons who were responsible for committing the statutory offences referred to in Section 27 of the Act. It was held by the Supreme Court in Aligarh Municipality v. E. T. Mazdoor Union, AIR 1970 SC 1767, that-''a command to a Corporation is in fact a command to those who are officially responsible for the conduct of its affairs. If they, after being apprised of the order directed to the Corporation, prevent compliance or fail to take appropriate action, within their power, for the performance of the duty of obeying those orders, they and the corporate body are both guilty of disobedience and may be punished for contempt. '' in our view, likewise a penal provision, which as stated above, is applicable to a ''company'' by the Commission in Section 27 must be treated as applicable to those who are officially responsible, for the conduct of its affairs. Here, the two petitioners are the Directors of each of the two companies. We may also point out that in the Supreme Court judgment aforementioned though on facts, the Executive Officer of the Corporation was exonerated, that was not because he could not be legally made liable but because he was factually not proved to be responsible for not obeying the command of the Court. In our view, as per the principle laid down in the above ruling of the Supreme Court, the penal provisions in Section 27 of the Act can be applied to the Directors of the Companies, notwithstanding the absence of a specific provision for action against those in charge of or in control of the affairs of the company. The same conclusion can be reached by applying the principle of ''lifting the veil'' explained in the recent judgment of the Supreme Court in Delhi Development Authority v. Skipper Construction Company, AIR 1996 SC 2005 = 62 (1996) DLT 543 (SC) (at p. 2013 ). If the corporate personality is used as a cloak for fraud or improper conduct, the Court can go behind the veil. Where the protection of public interest is of paramount importance the Court is entitled to go behind the corporate personality. The principle was laid down by Sanborn, J. (see para 24 of Supreme Court judgment) that, when the notion of legal entity is used to. . . . defend crime the law will regard the Corporation as an association of persons. " (1990) (53 Mod. L. Review 338, Prof. S. Ottolenghi, "from Peeping Behind the Corporate Veil, to ignoring it completely ). The Supreme Court also referred to Prof I Maurice Wormser''s article ''piercing the veil of Corporate entity 1912)'', (12 Columbia Law Review 496) that, where the concept of corporate entity is employed to. . . . protect crime, the Court will draw aside the web of the entity, will regard the corporation of Company as an association of live, up and doing men and women shareholders, and will do justice between real persons. In Byford Leasing Ltd. v. Union of India, 57 (1995) DLT 623, a Division Bench of the Court held that under Section 27 of the Act Chairman and Managing Director of a Company can be proceeded against, he being in charge of the management and control of the affairs of the company. "

Keeping in view the aforementioned judgment and also the fact that appellant/opposite party No. 5 was a Director of the company during the time of cause of action i. e. payment of the amounts to opposite party No. 1 company, we see no reason to interfere with the well considered order of the District Forum.

IN the result this appeal fails and is accordingly dismissed. Time for compliance four weeks. Appeal dismissed.