Suit for Recover of Money based on MOU against one of the Director/Defendant - Whether MOU is a contract or a simple deed of acknowledgement of liability- Though The said MOU was not executed between the company on one hand and the defendant on the other. and The MOU does not bear the official seal of the company.- the Memorandum of Understanding was made between the Directors of the company and that in the circumstances stated therein the defendant had accepted the deficit amount of Rs.33 lakhs was with him and had further agreed to repay the said deficit in three instalments as detailed in the MOU. - that the document is intended to record the admission in regard to the deficit money, which is with the defendant, and which is due from the defendant to the company and not to any individual Director. -hence the objection under Sections 397, 398 and 399 under Chapter IV of the Companies Act not applies as it is not between third parties- hence it is not a contract and it is only a deed of acknowledgement of liability ; Whether the suit is maintainable when arbitrate clause is there - as the defendant has not taken any objection under sec.8 of Arbitration and Conciliation Act - a new plea at appeal stage not maintainable as it amounts to waiver of jurisdiction - like wise the territorial Jurisdiction objection also can not be raised at appeal stage ; Under Or.29 C.P.C. a plaint by corporation can be signed by the person who has got knowledge of the facts of the case- as per sec. 99 of C.P.C. - No decree to be reversed or modified for error or irregularity not affecting merits or jurisdiction: - 2015 Telangana & A.P. MSKLAWREPORTS
Whether the civil court is not having jurisdiction for the reason that the
subject dispute is arbitrable since covered by an arbitration agreement
between the parties?
Section 8: Power to refer parties to arbitration where there is an arbitration
(1) A judicial authority before which an action is brought in a matter which
is the subject of an arbitration agreement shall, if a party so applies not
later than when submitting his first statement on the substance of the
dispute, refer the parties to arbitration.
(2) The application referred to in sub-section (1) shall not be entertained
unless it is accompanied by the original arbitration agreement or a duly
certified copy thereof.
(3) Notwithstanding that an application has been made under sub-section
(1) and that the issue is pending before the judicial authority, an arbitration
may be commenced or continued and an arbitral award made.
In the case on hand, the defendant did not at all file an application, much less
before filing the written statement, requesting the trial Court to refer the
parties to arbitration. The Section of Law ordains that any application
requesting to refer the parties to arbitration shall be filed not later than the
party submitting the first statement on the substance of the dispute.
Therefore, even assuming for a moment that the dispute is arbitrable one,
since the defendant had failed to exercise the right available to him under
Section 8 of the Act and had submitted to the jurisdiction of the Civil Court,
it follows that the defendant had waived his right. Therefore, the contention
that the civil suit is not maintainable as the dispute is arbitrable one, cannot
Whether the City Civil Court at Hyderabad has no territorial jurisdiction?
As rightly pointed out, as per the provision under Section
21 of the Code, no objection as to the place of suing shall be allowed by any
appellate or revisional court unless such objection was taken in the court at
the first instance at the earliest possible opportunity and in all cases where
issues are settled at or before such settlement. Further, the section of law
lays down that such an objection as to the place of suing shall not be allowed
unless there has been a consequent failure of justice. The law is well settled
that objection as to territorial jurisdiction, if not taken at or before
of issues, it shall be deemed that such objection as to territorial jurisdiction
has been waived. In this case, neither an objection as to the want of
territorial jurisdiction of the trial court was raised nor consequent failure of
justice was shown to have been caused. Therefore, the contention in regard
to lack of territorial jurisdiction of the trial court is rejected being devoid
Whether the MOU under Ex.A1was obtained by force and
coercion, as contended by the defendant, and whether the MOU
is not true, valid and binding on the defendant?
The suit is filed for recovery of money based on Ex.A1-MoU
and Ex.A2-statement of account.
At the outset, it has to be restated and
noted that though the defendant had contended in the written statement that
the MOU was obtained under force and coercion, he did not make a whisper
about Ex.A2-statement of account, which is also referred in Ex.A1-MOU
and had not denied the correctness of the said exhibit A2-statement of
The fact that he was in-
charge of the affairs of the company as Managing Director and was
supervising the construction activity is not in dispute.
he had admitted that he was controlling the affairs of the
company and that as per the records of the company, 290 persons had
booked flats and that the said allottees who had booked the flats had paid
amounts to him and he had passed receipts acknowledging the same. It is
also admitted that under his supervision, the construction of the flats was
started. He had also admitted that he had spent money on the construction of
The defendant is liable to account for the
money collected, the same being the money of the company and he is also
liable to account for the receipts and expenditure.
defendant had admitted in his evidence that Central Bureau of Investigation
(CBI) had filed a charge sheet against him for the offences punishable under
Sections 120 B and 420 of the Indian Penal Code, 1860 (IPC) and that C.C.
No.2 of 2002 is taken on file by a competent court and is pending. The
charge sheet in the said Calendar Case is exhibited as Ex.B19.
When there were demands from the
intended purchasers of the flats, the other Directors of the plaintiff company
had questioned the defendant and on that there were discussions; and, at the
intervention of well-wishers, the defendant had admitted that there was a
deficit of money and also his liability.
In the said circumstances, the MOU
under Ex.A1 has come to be executed.
A perusal of the same would show
that on verification of the audit report, which was approved and accepted by
the Managing Director, a sum of Rs.33,00,000/- was found to be the deficit.
Under clause (2) of the said MOU, the defendant had agreed that there was
deficit of Rs.33,00,000/- and the same was with him and had further agreed
to repay the said amount to the plaintiff company in 3 instalments, viz., (i)
Rs.10,00,000/- being the first instalment payable on or before 30.10.1996;
(ii) Rs.10,00,000/- being the second instalment payable on or before
10.11.1996 and (iii) the balance being the last instalment payable on or
The recitals of the exhibit A1-MOU coupled with the
exhibit A2-statement of account and the evidence on record are sufficient to
come to a safe conclusion that the plaintiff proved its case by adducing the
required standard of evidence and discharged the onus of proof as well as the
legal burden, which is upon the plaintiff.
Be that as it may, in view of the admission of the signature on
the MOU and in the light of the defence that the MOU was obtained by force
and under coercion, it is for the defendant to establish his defence. The
defendant did not adduce any credible evidence in support of the said
defence. Except his interested testimony, there is no other evidence on
record to establish the same. If really Ex.A1-MOU was obtained under
force and coercion, the defendant ought to have taken legal action, at least
by lodging a police report.
had placed particular reliance on Ex.B10 minutes, where under it appears to
have been stated that the defendant had complained to the other Directors
regarding the fact that his signatures were obtained by force on Ex.A1-MOU
on 19.10.1996 and that the Directors present at the meeting had accepted that
the said document was obtained without any authority of the Board of
Directors and that it is an illegal document and that the same is not binding
on the company.
The said documents were not confronted to PWs.1 and 2
and the same were produced only at the fag end of trial and when the
defendant was examined. Even when an objection was raised on behalf of
the plaintiff for marking of the said documents, no efforts were made to
secure the originals by following the procedure contemplated under law.
Though it is contended in the additional written statement filed before this
court that a notice to produce the documents was given, the said contention
is only a belatedly introduced as an after thought and no such document
evidencing the fact that a notice to produce the documents was given was
Be that as it may. The trial court while allowing the application
of the defendant requesting for permission to adduce secondary evidence had
left open the question of the genuineness of the documents and had only
considered the request for permission to adduce secondary evidence.
Therefore, though permission was accorded to exhibit photostat copies, i.e.,
exhibits B8 to B11, the defendant was required to prove the genuineness of
the said documents.
Even according to the defendant, the said documents
were filed in the proceedings before the Company Law Board. So far as the
other exhibits are concerned, the defendant had obtained the certified copies
and exhibited the same.
But, insofar as Exs.B8 to B11 are concerned, no
such certified copies were obtained and filed.
The said documents do not
contain the signatures of the Board Members, who had attended the Board
Meetings, which were allegedly held. According to the defendant, the said
documents under exhibits B8 to B11 were served on the defendant in the
proceedings pending before the Company Law Board.
Therefore, on an analytical
examination of the evidence, we are of the well considered view that exhibit
A1-MOU was entered into and was signed by the defendant voluntarily and
not under coercion and force and that therefore, the same is true, valid and
binding on the defendant.
Whether the payment of Rs.10,00,000/- made by the defendant
on 01.11.1996 is towards partial discharge of the amount
covered by MOU dated 19.10.1996?
Under the MOU, the 1st instalment of
Rs.10,00,000/- is payable on or before 30.10.1996. A payment of
Rs.10,00,000/- was admittedly made by the defendant to the landlord.
Therefore, the plaintiff contends that the MOU was acted upon by the
defendant and the 1st instalment was duly paid and that the other two
instalments are payable. Since this payment was admittedly made to the
landlord on 01.11.1996, the defendant in his written statement had
contended that the said payment was in no way concerned with the
memorandum of understanding. Therefore, the defendant sought to contend
that the said payment is not made in pursuance of the liability under Ex.A1-
MOU, but the said payment was made for some other purpose unconcerned
with the MOU. But, the defendant did not adduce any evidence and is not
able to establish as to what was the other purpose for which the said
payment was made. In the absence of any explanation much less a valid
explanation and evidence on the side of the defendant in support of the
contention that the said payment was made towards some other purpose
unconcerned with the MOU, the case of the plaintiff that the defendant had
made the part payment of Rs.10,00,000/- towards 1st instalment that was due
under the MOU deservers to be accepted. Accordingly, we hold that this
part payment of Rs.10,00,000/-, which was admittedly made by the
defendant to the landlord, was made only towards the first instalment
payable under the MOU as contended and established by the plaintiff. This
payment made by the defendant fortifies the contention of the plaintiff that
the MOU is true and is acted upon. Only after deducting this payment, the
suit claim was made.
Whether the plaintiff is entitled to the suit amount or any part
Once it is held that Ex.A1 is proved, it follows that the
defendant is liable to pay Rs.33,00,000/- to the plaintiff company as per the
terms of the said MOU-exhibit A1. In view of the payment of
Rs.10,00,000/-, the balance still due and payable by the defendant is
Rs.23,00,000/-. After giving credit also to the share capital of the defendant,
which was appropriated at the time when the defendant was removed from
the posts of Chairmanship and as Managing Director of the company, the
suit is laid for recovery of the balance amount due i.e., Rs.20,09,903/- along
with interest. In the light of the discussion coupled with reasons, it follows
that the plaintiff company is entitled to a decree for the suit amount with
interest. Points 2, 3 and 4 are accordingly answered in favour of the plaintiff
and against the defendant.
Whether the suit is not maintainable. ?
Exhibit A1-MOU was not signed under the authority of the
Board of Directors of the plaintiff company and that the said document does
not bind the plaintiff company.
In the absence of any Board Meeting or Resolution, the
company has no locus standi to file the suit for recovery of the amount on
the basis of the MOU.
The said MOU was not executed between the
company on one hand and the defendant on the other.
The MOU does not
bear the official seal of the company.
The provisions of Sections 397, 398
and 399 of the Companies Act, 1956, would show that the suit filed by the
company against the defendant is not maintainable.
Director, Y. Subbarayudu, whose name was shown in the cause title, had
died during the pendency of the suit.
Therefore, the suit as laid by the company is not maintainable.
Whether MOU is a contract or simple deed of acknowledgement of liability
That the MOU is not a contract and it is only a document,
where under the defendant had admitted his liability in respect of the amount
due and payable by him to the company.
The admission of the defendant
and other terms agreed to between the parties are reduced into writing in the
form of MOU in the presence of all concerned and also the well wishers.
A plain reading of the document would show that the same is made amongst
the Directors of the plaintiff company and the defendant after the parties
have reviewed the position and status of the company in the presence of all
concerned including the well-wishers.
The said MOU on a plain perusal
also would show that after reviewing the audited accounts and discussing the
matters, the same was entered into.
Further, the introductory portion of the
MOU would show that the Memorandum of Understanding was made
between the Directors of the company and that in the circumstances stated
therein the defendant had accepted the deficit amount of Rs.33 lakhs was
with him and had further agreed to repay the said deficit in three instalments
as detailed in the MOU.
Therefore, a harmonious reading of all the clauses
of the MOU would lay bare that it was executed with the Board of Directors
of the company as parties to it, in order to fix the liability of the defendant
on his own admission in the presence of well wishers; and that the document
is intended to record the admission in regard to the deficit money, which is
with the defendant, and which is due from the defendant to the company and
not to any individual Director.
The document is not a contract entered into by the company with a stranger or a third party.
A plain reading of the
Sections 397, 398 and 399 under Chapter IV of the Companies Act , which
were relied upon by the learned counsel for the appellant-defendant would
show that the said provisions deal with situations for relief in case of
oppression and the rights of the members of the company and the application
for relief in cases of mismanagement and the eligibility of the members of
the company, who shall have a right to apply under Sections 397 and 398;
and therefore, the said provisions which relate to rights of certain members
to apply in case of oppression and mismanagement have no relevancy to the
present suit filed by the company against a defendant, who was formerly the
Chairman and the Director who had dealt with the activities of the company.
The amended cause title of the memorandum of appeal would show that the
company is now being represented by one of its Directors, K. Umamaheswar
Order XXIX of the Code deals with suits by or against Corporation.
Rule 1 of the said Order reads as under:
1. Subscription and verification of pleading :- In suits by or
against a Corporation, any pleading may be signed and verified on
behalf of the Corporation by the Secretary or by any Director or
other principal officer of the Corporation who is able to depose to
the facts of the case.
Appendix A dealing with pleadings and title of the suit in a case filed
by the plaintiff company reads as under:
The A.B Company, Limited having its registered office at ..
Section 99 of the Code reads as under:
99. No decree to be reversed or modified for error or irregularity not
affecting merits or jurisdiction: - No decree shall be reversed or substantially
varied, nor shall any case be remanded, in appeal on account of any misjoinder
or non-joinder of parties or causes of action of any error, defect or
irregularity in any proceedings in the suit, not affecting the merits of the case or the
jurisdiction of the Court.
Provided that nothing in this section shall apply to non-joinder of a
defendant coupled with the statement of account-under exhibit A2, which
was not denied are rightly accepted by the trial court as true, valid and
The trial court had rightly held that the suit is maintainable in all
The said document, in the circumstances stated, and being only an
MOU, where under only an admission of liability was made by the
defendant, does not require the affixation of the seal of the company.
company is a juristic person having its own entity and it can sue and be sued
in its name and there is no legal requirement that any named person be
shown in the cause titles as representing the company, and, the requirement
of law as per the provisions of order XXIX of the Code would be satisfied if
the pleadings are signed and verified on behalf of the company by the
Secretary or by any Director or other principal officer of the Corporation
who is able to depose to the facts of the case and that therefore, the
contentions of the defendant are devoid of merit.
None of the Directors are
opposing the suit, and, on the other hand, all the Directors are interested in
realising the money due to the plaintiff company.
Further, as per the
provision under Section 99 of the Code, no decree of a court is to be
reversed or modified for error or irregularity not affecting the merits of the
case or jurisdiction of the court.
All the contentions in regard to
maintainability of the suit have no factual foundation in the defence.
defendant could not show that on account of the alleged contentions now
raised and the alleged defects pointed out, the merits of the case are affected
and that any miscarriage of justice had occasioned.
contentions that the suit as framed and laid is not maintainable are devoid of
merit.- 2015 Telangana & A.P. MSKLAWREPORTS