Malalur Sudhindra Sriharsha And Another v. Indchem Sales Corporation And 2 Others

IN THE HIGH COURT OF JUDICATURE AT MADRAS

RESERVED ON : 15.02.2021 PRONOUNCED ON : 15.03.2021 CORAM :

THE HONOURABLE MR.JUSTICE C.V.KARTHIKEYAN A.No.2437 of 2020 in C.S.No.69 of 2020 1.Malalur Sudhindra Sriharsha 2.Supreme Overseas Exports India Private Limited, [Applicants 1&2 are at No.44/1, 16th Cross, K.R.Road, Jayanagar, 7th Block, Bangalore, K.A.-560 082, INDIA Also at : NO.11/1, 24th A Cross, K.R.Road, Banasankari II Stage, Bangalore-560 070. ... Applicants/Defendants 3&4 Vs.

1.

Indchem Sales Corporation, No.62, E.V.K. Sampath Road, Vepery, Chennai - 600 007, Represented by its Partner Paresh Pratap Vasa ... 1st Respondent/Plaintiff 2.

Sura Leathers Private Limited, No.108/1, Gudiyatham Road, Periyavarigam Village, Thuthipet (Post), Ambur, Pincode - 635 811. Represented by its RP, V.Duraisamy, No. 387, Third Floor, Precision Plaza, Anna Salai, Teynampet, Chennai - 600 018.

3. Satnur Ramachandra Rao Ramprasad ... Respondents/defendants 1&2 Prayer:

This application is filed under Order XXXVII Rule 3 (5) of CPC to grant leave to the applicants 1&2/defendants 3&4 to defend the suit in C.S.No.69 of 2020.

Applicants : Mr.B. Thilak Narayanan Respondents : Mr.R.Vasudevan ------

ORDER

Application has been filed by the defendants under Order 37 Rule 3(5) of the Code of Civil Procedure seeking leave to defend the suit. 2.

The suit had been filed by the plaintiff Indchem Sales Corporation, a registered Partnership Firm, against the four defendants, namely Sura Leathers Private Limited, a Company incorporated the Companies Act, 1956 and its Directors Satnur Ramchandra Rao Ramprasad and Malalur Sudhindra Sriharsha and also against Supreme Overseas Exports India Private Limited also a Company incorporated under the Companies Act, 1956, seeking a judgment and decree against the 2nd to 4th defendants to pay a sum of Rs.5,53,61,330/- together with interest at 24% p.a. on the principal amount of Rs.3,26,23,322/-

from the date of the suit till the date of realization and also for costs of the suit and for a direction to lift the corporate veil of the first defendant and declare that the first defendant is a fraudulent entity in the hands of the 2nd to 4th defendants.

3.

In the plaint, it had been stated that originally, a partnership firm under the name Supreme Overseas, was started by the father of the 3rd defendant/father-in-law of the 2nd defendant and had dealings with the plaintiff from early 1970's. Later, the 4th defendant was incorporated. However, the 2nd and 3rd defendants purchased leather chemicals under the name Supreme Overseas. The plaintiff had been supplying such leather chemicals continuously. They were informed in the year 2011 that the bills should be raised in the name of the 1st defendant. It was claimed that the defendants were part of the Supreme Group of Companies. It was stated that the 1st defendant was used as a cloak to defraud creditors. It was stated that amounts fell due from the year 2014 onwards.

The 1st defendant requested the plaintiff to give a discount on the outstanding of Rs.3,26,23,322/- as on 30.09.2016. A Memorandum of Understanding dated 14.07.2017 was entered into between the plaintiff and the defendants. The amount due was crystalised to Rs.1,50,00,000/-. It was stated that the said amount would be cleared by the defendants in three installments, payable on 15.07.2017, 15.08.2017 and 15.102017.

amounts were not so cleared then the plaintiff can lay a claim for the actual amount due, namely, Rs.3,26,23,322/-. It was stated that the amounts as agreed were not paid. In the meanwhile, the first defendant was declared insolvent by the Bengaluru Bench of NCLT. It was stated that the second, third and fourth defendants deliberately permitted the first defendant to be declared as insolvent. It was stated that the defendants had purchased chemicals on credit basis from the plaintiff for a considerable period of time and the transactions were maintained in the ledger of the plaintiff's company and also in the accounting software. A Legal notice was issued on 20.05.2019. A reply was sent on 30.05.2019. Thereafter, several E-mail communications were also sent as reminders. It was stated that the defendants are due and liable to pay to the plaintiff the amount claimed in the suit.

4.

It also transpired that the NCLT, Bengaluru Bench had also appointed the second defendant as Interim Resolution Professional and an order of moratorium was declared and prohibitions imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016. It was stated that subsequent to the institution of the suit, the second defendant had been appointed as Liquidator of the first defendant and liquidation had also been ordered. 5.

The plaintiff had approached the second defendant laying a claim

of Rs.5,34,95,097/-. The second defendant had admitted the claim only to a sum of Rs.1,10,00,100/-. The suit had been filed taking advantage of Order 37 of the Code of Civil Procedure Code.

6.

The present application has been filed by the defendant seeking leave to defend the suit under Order 37 Rule 3 (5) of the Code of Civil Procedure. In the affidavit filed in support of the said application, it had been stated that Techno Chem Distributors, a sister concern of the plaintiff had moved the National Company Law Tribunal, Bengaluru, against the first defendant seeking to initiate Corporate Insolvency Resolution Process under Section 9 of the Insolvency and Bankruptcy Code, 2016, contending that the plaintiff had supplied leather chemicals to the first defendant between April 2014 and June 2015 and that payments were due. The claim was rejected as being time barred. Thereafter, an appeal had been filed before the Company Law Appellate Tribunal.

In the meanwhile, another company, Vansun Intermediates Private Limited also filed Corporate Insolvency proceedings against the first defendant in the Company Law Tribunal at Bengaluru Bench. That claim was admitted. The second defendant was appointed as Interim Resolution Professional and an order of Moratorium was declared in accordance with Section 14 of the Insolvency and Bankruptcy Code, 2016.

liberty to raise a claim before the Interim Resolution Professional. Accordingly, a claim was laid and a sum of Rs.1,10,00,100/- was admitted. It had been stated that therefore, the issues in the present suit had already been determined and it is pending for consideration in Corporate Insolvency Proceedings. Further, since Moratorium had been declared and is still in effect, the suit is barred by operation of law. It had also been stated that the defendants have sufficient grounds to defend the claim made by the plaintiff. It had been stated that the suit has no cause of action. It is under these circumstances that leave to defend had been sought by the defendants. The averments in the plaint had been denied.

7.

A counter affidavit had been filed on behalf of the plaintiff stating that the insolvency proceedings and the present proceedings in the civil suit are totally different. In a Corporate Insolvency Resolution Process remedies sought under Section 9 of the Insolvency and Banking Code alone can be adjudicated whereas before this Court a claim has been raised for determination. It had been stated that the Interim Resolution Professional is not a final authority in deciding the claim of the plaintiff. It had been stated that sufficient pleadings had been stated in the plaint regarding the manner in which the plaintiff had been defrauded by the defendants. It had been stated that the issue regarding lifting of the corporate veil would survive in view of the fraudulent actions, particularly

by the fourth defendant. The 2nd, 3rd and 4th defendants are the shareholders of the first defendant and the 2nd and 3rd defendants are the Directors of the 1st and 4th defendants, In all the transactions the 2nd and 3rd defendants had been involved. It had been stated that the plaintiff had supplied materials to the first defendant on trust. Therefore, it had been stated that the applications seeking leave to defend should be dismissed.

8.

Heard Mr.B.Thilak Narayanan, learned counsel for the applicants/third and fourth defendants and Mr.R.Vasudevan, learned counsel for the respondent/plaintiff. For the sake of convenience the parties will be termed as plaintiffs and defendants.

9.

The plaintiff is a Partnership Firm. They are suppliers of leather chemicals. They have been supplying leather chemicals originally to a Partnership Firm, Supreme Overseas which was started by the father of the third defendant/father-in-law of the second defendant. The second and third defendants were the partners of the first defendant. The fourth defendant was then incorporated. The second and third defendants are the Directors of the fourth defendant. The plaintiff continued to supply leather chemicals to the fourth defendant. Thereafter, it is claimed, that the plaintiff was directed to raise bills in the name of the first defendant. Leather chemicals were supplied and the

bills were raised in the name of the first defendant. The second and third defendants were the directors of the first defendant. The amounts due to the plaintiff increased. The first defendant did not make any payment. One of the creditors Vansun Intermediates Pvt. Ltd., had filed insolvency proceedings against the first defendant in CP.(IB) No: 41/BB/2019 before the NCLT, Bengaluru Bench. The said Bench declared the first defendant as insolvent. The second defendant was appointed as Interim Resolution Professional. He was later appointed as Liquidator. Order of liquidation was passed against the first defendant. The plaintiff laid a claim for Rs.5,34,95,097/- before the second defendant/liquidator, who admitted a sum of Rs.1,10,00,100/-. 10.

The plaintiff claimed that a Memorandum of Understanding had been reached with the defendant on 14.07.2017 wherein the outstanding amount was crystallised to a sum of Rs.1,50,00,000/- and a commitment was made under the Memorandum of Understanding to clear the said sum within a specified period and if it was not so cleared, the plaintiff can claim the actual amount due. The actual amount due was Rs.3,36,23,322/-. The amount agreed under the Memorandum of Understanding was not paid by the first defendant. 11.

The main ground on which leave to defend the sought is that the National Company Law Appellate Tribunal, Bengaluru Bench, had appointed

the second defendant herein as the Interim Resolution Professional of the first defendant. The plaintiff had laid a claim before the Interim Resolution Professional. The claim had been adjudicated. It had been adjudicated and admitted to a sum of Rs.1,10,00,100/-.

12.

It is the contention of the learned counsel for the defendants that the present suit is an indirect form of reagitating the same claim. However, it is the contention of the learned counsel for the plaintiff that liberty had been granted to approach the Civil Court and irrespective of that fact, the proceedings before the Company Law Tribunal was only to examine the status of the first defendant vis-a-vis the Creditors and the capacity of the first defendant to pay the creditors their dues. When the liabilities of the first defendant had increased, then, to administer the first defendant an Interim Resolution Professional had been appointed to examine the issues and redress the claims of the creditors of the first defendant. However, it is claimed by the plaintiff that in the present suit the plaintiff is seeking the amounts payable which are due owing to materials already supplied.

13.

However, I hold that the defendants will necessarily have to be given an opportunity to put forth their defence and the issue whether that inspite of the proceedings before the NCLT, this civil suit could be continued or not will

have to be decided only on examination of the evidence adduced by the witnesses. Opportunity will have to be given to the plaintiff initially to substantiate their claim. The documents filed by the plaintiff will have to be spoken to by competent witnesses. The documents will have to clear the test of admissibility. They will then have to be examined whether they are relevant. They will have to be proved in manner known to law. There are complicated bundles of facts in the present suit. The fact that the plaintiff had supplied materials cannot be denied or disputed by the defendants. The fact that the plaintiff has dues pending again cannot be denied or disputed by the defendants. However, the issue of limitation and the issue of re-agitation stare in the face of the plaintiff. That can be addressed only on evidence being adduced by the witnesses for the plaintiff and analysed by the cost. 14.

Further, a burden is caused upon the plaintiff to establish that the first defendant was only a cloak created by the 2nd and 3rd defendants to defraud the creditors and that the leather chemicals were actually utilized by the 2nd and 3rd defendants on behalf of the 4th defendant. 15.

This is yet another relief sought in the plaint. It is seen that quite apart from claiming the amount due under the bills the plaintiff has also called upon the Court to lift the corporate veil. That can be done only on evidence

being adduced and when such evidence is adduced, the defendants must be given an opportunity to test that evidence through cross examination. The Court can never come to a prima facie conclusion regarding the corporate structure of the defendants and the interse play among them. It would be in the interest of the plaintiff that the allegations based in the plaint are adduced in the form of evidence and substantiated. This would only strengthen the case of the plaintiff. Further, the defendants also have a probable case owing to the earlier proceedings before the National Company Law Tribunal and Appellate Tribunal. They are Tribunals established by law. The plaintiff had approached the Interim Resolution Professional who had also adjudicated the claim presented by the plaintiff. Whether such adjudication had brought the entire process to a final conclusion or whether the plaintiff can still proceed to institute a suit and claim the amounts due are issues which can be decided only when the parties are given an opportunity to explain the respective stands on oath. 16.

In view of all these reasons, I hold that the application has to be allowed and the defendants will necessarily have to be given an opportunity to file a written statement relating to the averments made in the plaint.

17.

In the result, the Application No.2437 of 2020 is allowed. No costs.

Sd/-C.V.K.J 15.03.2021 // Certified to be true copy// Dated at Madras this day of 2021. Court Officer(O.S.) From 25th day of September 2008 the Registry is issuing certified copies of the Orders/Judgments/Decrees in this format.