OSA 173/2008 vs
1.M/s.Sri Kumarans Stores by its Partner P.J.Ethiraj Office at Kumaran Towers No.61, Usman Road, T.Nagar, Chennai 600 017, and having a showroom at Amrut Mall, 6-3-1110 Somajiguda
2.M/s.Kumarans by its Partner P.J.Ethiraj Office at Kumaran Towers No.61, Usman Road, T.Nagar, Chennai 600 017, and having a showroom at Amrut Mall, 6-3-1110 Somajiguda, Hyderabad.
(a) The plaintiff is a businessman with spot training in construction engineering. His knowledge on textiles and textile business as such is of high repute. The plaintiff and the partner of the defendants 1 and 2 Mr.P.J.Ethiraj has close business relationship. The said Ethiraj wanted to open a separate textile showroom in yet another city of Hyderabad. The plaintiff and Ethiraj stayed in Hyderabad and commenced the study of the market. The plaintiff suggested that they could organize an exhibition cum sale to test the pulse of the market, and accordingly, a very good exhibition was organized. It lasted for a period of 10 days. Ethiraj was convinced of his plans to open a prestigious showroom. Accordingly, it was located at Amruta Mall and inaugurated. The inauguration day sale was phenomenal Rs.75 lakhs. Ethiraj approached M/s.Bank of Baroda, Jubilee Hills Branch, for a CC limit of 2 crores. The banks insisted on collateral security, and at the request of Ethiraj, the plaintiff offered his properties consisting of 14 flats out of 20 flats that he owned. Then the limit was immediately sanctioned.
(b) In consideration of the services rendered by the plaintiff, he was initially offered Rs.12 lakhs towards Ravindra Bharathi exhibition plus 20% share on the profits of Sri Kumaran Stores and Kumarans. The defendant represented by P.J.Ethiraj chided the plaintiff to accept a consolidated single time settlement of 1% of the total sales turnover of 2 years' sales commencing from 1.4.1994 besides a consolidated commission of Rs.20 lakhs as guarantee commission for collateral security to the bank. Ethiraj has assured the plaintiff that this assignment will be incorporated duly on a stamp paper, and since they were organising Ugadi gift coupons sales, entreated the plaintiff to accept a letter of undertaking incorporating these terms. Mr.Ethiraj did not comply with his understanding nor has he executed a full-fledged agreement as promised by him.
(c) The plaintiff with the assistance of his bankers M/s.State Bank of Mysore, Abiramapuram, opened a prestigious show room for silk sarees under the name and style Sri Murugan Silk Centre, T.Nagar, Madras. Mr.Ethiraj and his crew taking advantage of the absence of the plaintiff maligned the name of the plaintiff in the market with the sole intention of defeating his rights. In the meanwhile, the Bank of Baroda, Hyderabad, decided to call back the loan of Rs.2 crores with accrued interest from the defendants. The defendants paid back the entire loan with a single payment mischievously and with clandestine intentions leaving a balance of just Rs.2,50,000/-. The documents were not released for the meager balance. Thereafter, Bank of Baroda called upon the balance to be paid along with accrued interest. Since the defendants attempted to intimidate the plaintiff, the plaintiff was constrained to make the payment on behalf of the defendants, of a sum of Rs.2,75,500/- and retrieved his documents from the bank. The plaintiff caused a legal notice. The defendants failed and neglected to pay despite several reminders. Hence the suit.
3.In the written statement filed by the defendants 1 and 3, it is alleged as follows:
The first defendant firm has no branch at Hyderabad as alleged in the plaint. After closing the business of Kumaran Stores and Kumarans by P.J.Ethiraj in March 1995, the third defendant, his three brothers and their father along with Ethiraj's brother-in-law have started a new business under the name and style of Sri Kumaran Stores and registered a new partnership firm at Hyderabad. None of the firms now exist at Hyderabad, and they are dissolved. The plaintiff has no qualification or textile business experience. On the other hand, Ethiraj had 18 years experience in textile business. Under the circumstances, no one could believe that the plaintiff has organised the exhibition-cum-sale and also helped Ethiraj to establish the regular showroom. The plaintiff had nothing to do with the first defendant firm at Madras. The alleged understanding between the plaintiff and Ethiraj had nothing to do with the first defendant firm. The plaintiff has fabricated the alleged letter of understanding dated 10.4.1994 upon the old letterhead of the first defendant firm taking advantage of Ethiraj's signature on a blank letterhead. If really Ethiraj and the plaintiff had fallen out in 1994 itself, the plaintiff could not have waited till 8.3.1997 to send a letter claiming the amount alleged to have been agreed under the alleged letter of understanding. Ethiraj has not agreed to pay any guarantee commission of Rs.12 lakhs or any commission on turnover. The plaintiff has no manner of right to claim any amount, and hence the suit was to be dismissed.
4.The defendants 2, 4, 5 and 6 filed a joint written statement with the following allegations:
(a) The plaintiff with ulterior motives impleaded Sri Kumaran Stores at Madras as a party to the proceedings. Sri Kumaran Stores never had any dealings with the plaintiff at any time. Kumaran Stores and Kumaran's at Hyderabad have nothing to do with Sri Kumaran Stores at Madras. There was no Sri Kumaran Stores started at Hyderabad in 1994 by P.J.Ethiraj. P.J.Ethiraj cannot get even 10% margin in any business and whileso he could not have offered or agreed to pay Rs.12 lakhs for the exhibitions-cum-sale and also 20% share in the profit or 10% guarantee commission to the plaintiff as falsely alleged by him. Ethiraj never agreed to perform the same. He never agreed to incorporate the arrangements on any stamp paper and also has not given the letter of undertaking as alleged by the plaintiff.
(b) The letter of undertaking filed by the plaintiff is a fabricated one misusing the letterhead of Sri Kumaran Stores, Madras. In the letter issued by the plaintiff dated 8.3.1997 to Ethiraj, he has not mentioned that the MOU is given for guarantee commission. The plaintiff has not done anything in the establishment of a regular shop by Ethiraj in 1994 as he had no business experience in textiles and there was no need to engage him to supervise carpentry, designing and any other work. There was no necessity for Ethiraj to pay 10% guarantee commission to the plaintiff for offering his property as security while Ethiraj himself is owning his own immovable property bearing Door No.3, Thanjavur Road, T.Nagar, Chennai 17. The plaintiff gave his property which is in incomplete construction, as security only in his own business interest as Ethiraj has agreed to stand as guarantor to the suppliers of sarees to the plaintiff from Surath. Since the plaintiff has not paid to the suppliers from Surath, Ethiraj as guarantor has paid Rs.10,22,579.80 to them and demanded the said amount from the plaintiff, and the plaintiff has been making false promises and has been postponing the payment. Hence Ethiraj lodged a criminal complaint, and the police have arrested the plaintiff. The plaintiff promised before the police that he would settle the account of Ethiraj by giving some incomplete flats, but he has not fulfilled his promise.
(c) The loan of Rs.2 crores raised from Bank of Baroda, Hyderabad, by Ethiraj has been repaid leaving the balance of Rs.2,72,500/- with the purpose of retaining the plaintiff's documents in the bank under security and get payments due to Ethiraj from the plaintiff. If the said letter of undertaking dated 10.4.1994 said to have been executed by Ethiraj is true, then the plaintiff would not have kept quiet without calling upon Ethiraj to execute stamped agreement till 8.3.1997. Hence the suit was to be dismissed.
5.In the additional written statement filed by the defendants 1 to 6, it is alleged as follows:
(a) After the amendment of the plaint, the plaintiff has sought for a sum of Rs.82,62,849/- representing the alleged commission earned out of the sales turnover of the first and second defendants' branch at Hyderabad for two years from 1.4.1994 to 31.3.1996. The claim is based on a document which has not been filed along with the suit, and it cannot be the foundation of the new claim introduced belatedly after nearly 10 years. As such the claim is hopelessly barred by law of limitation. The suit is barred under Order II Rule 2 of CPC.
(b) When the plaintiff has failed to lay a claim for arriving the sum at the time of institution of the suit itself, now he cannot substitute or substantiate his claim on the basis of the auditor's report which is inadmissible in evidence. In the absence of a suit for rendition of account with regard to that claim, the present suit filed for recovery of money originally cannot be altered or modified. The defendants have not agreed to pay any turnover commission to the plaintiff. The claim of Rs.29,16,000/- towards the guarantee commission is opposed to public policy and also against the provisions of Sec.23 of the Contract Act. The plaintiff is liable to pay more than Rs.10 lakhs to the defendants. In as much as the plaintiff had undertaken to pay Rs.2,72,500/- to the bank, he is liable to pay Rs.8 lakhs and odd.
6.The plaintiff filed a reply statement controverting the allegations found in the written statement and the additional written statement.
7.On the above pleadings, the trial Court framed 11 issues and 3 additional issues. The parties went on trial. The plaintiff examined P.W.1 and marked Exs.P1 to P17. The defendants examined D.Ws.1 and 2 and marked Exs.D1 to D8. On scrutiny of the evidence both oral and documentary, the trial Court decreed the suit in part that the plaintiff was entitled to Rs.22,72,000/- from the defendants 1 and 2 with future interest at 6% per annum from the date of decree till realisation and dismissed the suit in respect of all other reliefs. Hence these appeals have arisen before this Court.
8.In these appeals the following points were formulated for determination.
(i) Whether the judgment of the trial Court in respect of the claim of Rs.2,72,500/- is sustainable?
(ii) Whether the claim of Rs.82,62,849/- is barred by limitation as held by the trial Court?
(iii) Whether the trial Court was correct in awarding Rs.20 lakhs towards guarantee commission?
(iv) Whether the interest awarded by the trial Court requires interference?
9.The learned Counsel for the appellant in OSA 158/2008 has made the following submissions:
(i) The commitment to pay the guarantee commission and that of 1% commission on total sales turnover of the first and second defendants are co-existence and having force of enforcement in all respect. Both the commitments are existing in one document namely Ex.P5. The learned Single Judge having accepted the liability to pay the guarantee commission as committed in Ex.P5, ought to have directed payment of turnover commission of 1% also to be paid to the plaintiff.
(ii) At one stage, the respondents/defendants took the plea of disowning Ex.P5 letterhead and at other stage, they contended that the said letter was prepared by using the blank signature of the person. It is pertinent to point out that the appellant is entitled to enforce the commitment as found in Ex.P5. Ex.P5 was produced since the respondents disputed the existence of the understanding.
(iii) When the plaintiff's commitment was procured for the purpose of commercial nature, the rules governing the commercial aspects need to be implemented in all respects including that of granting the interest to the amount withheld by the respondents. The defendants have postponed the payment without any reason whatsoever. Hence there is every justification of the plaintiff to claim interest on the due payment.
(iv) Having taken pain to establish the turnover through bank transactions by summoning the records from the concerned bank and in the absence of any dispute over the said accounts, the learned Single Judge ought to have awarded turnover commission as prayed for.
(v) The amendment in the prayer (c) was sought for after determining the turnover by securing the records from Bank of Baroda, Jubli Hills Branch, and it is not a new case or new prayer introduced to the case. Under such circumstances, the judgment of the trial Court disallowing the claim has got to be set aside and the suit be decreed in entirety.
10.The learned Counsel for the appellants in OSA 173/2008 has made the following submissions:
(i) There had been mutual claims between the partners of Sri Kumaran Stores. Kumaran Stores at Hyderabad and Kumaran's and Sri Kumaran Stores, the appellants 1 and 2, are not the same.
(ii) Rs.2,72,500/- alone is payable to the respondent, and hence the plaintiff has remitted the same to the bank.
(iii) Ex.P5 is concocted and fabricated. The letterhead is not that of the firm/partners, who were carrying on business at Hyderabad and for whom the alleged guarantee is given. The letter is not issued by Kumaran Stores or Kumaran's. In the absence of any co-relation of the debt, the undertaking claim made by the respondent is unsustainable.
(iv) There must be unequivocal promise for payment of commission supported by consideration. In the absence of any consideration, merely offering the property purchased by Ethiraj in the name of the respondent and offering the same as guarantee, would not entitle the respondent to claim guarantee commission in the absence of proof of such an arrangement.
(v) The role of the defendants in promoting the sales in their shops at Hyderabad and the nature of commission earned, have not been proved or substantiated by placing both oral and documentary evidence.
(vi) The suit is not on accounts or for any ascertained sum. It is pertinent to note that in Ex.P6, there is no mention about the guarantee commission and there is no mention about the period commencing from 1.4.1994. There were contradictions between Ex.P5 and Ex.P6. When Ex.P5 contemplates the execution of a regular agreement between the parties and in the absence of the same, the conclusion reached by the trial Court is erroneous.
(vii) When there is an issue as regards the constitution of the firms at Hyderabad and at Chennai, the trial Court should have insisted on proper proof. The trial Court having held that the claim is barred in law, ought to have rejected the claim in toto except to the extent of Rs.2,72,500/- subject to the claims of Ethiraj as against the respondent under Ex.P15. In such circumstances, the judgment of the trial Court has got to be set aside.
11.For the sake of convenience, the parties are hereinafter referred to as plaintiff and defendants.
12.As could be seen above, the plaintiff made three claims namely a sum of Rs.29,60,000/- towards the guarantee commission of Rs.20,00,000/- together with interest, a sum of Rs.2,72,500/- towards the repayment of the loan which the defendants were liable to pay to M/s.Bank of Baroda and which was paid by the plaintiff along with interest of Rs.38,150/- and also a sum of Rs.82,62,849/- along with interest at 18% per annum alleging that the plaintiff was entitled to a sum of Rs.43,22,599/- towards the commission at the rate of 1% agreed between the parties in respect of the total sales turnover of the Hyderabad Branch of the defendants 1 and 2 for two years commencing from 1.4.1994 along with interest amounting to Rs.39,40,250/-, thus totalling to Rs.82,62,849/-. The defendants totally denied before the trial Court all the claims.
13.Admittedly, the defendants availed a loan of Rs.2 crores from Bank of Baroda, Hyderabad. It is also admitted that on the insistence of the bank in order to cover the said loan of Rs.2 crores, the plaintiff offered his properties consisting of 14 flats which were owned by him, and only on the strength of the same, the loan was also sanctioned in April 1994, When the bank demanded for the repayment of the entire loan amount, the defendants settled by making a single settlement, but leaving a balance of Rs.2,50,000/-. Since a balance of Rs.2,50,000/- was to be paid, the bank refused to return the documents, which were originally placed by the defendants to cover the said loan. The plaintiff has filed sufficient documentary evidence to indicate payment of the said amount of Rs.2,72,500/- along with a letter whereby the documents were returned by the bank. The counterfoil for the payment by the plaintiff is also filed. Insofar as this claim is concerned, the learned Counsel for the defendants at the time of enquiry of the appeals fairly conceded that the defendants were liable to make the payment, and in that regard, he has no objection for sustaining the decree of the trial Court.
14.The trial Court has awarded future interest at the rate of 6% per annum from the date of decree till date of realisation. It is pertinent to point out that it was a loan raised by the defendants for which the plaintiff has offered his property as security. When the plaintiff on demand settled the loan transaction, the defendants should have paid the entire sum; but, they have paid leaving a balance of Rs.2,72,500/-. It would be quite clear that the remainder was also payable by the defendants and not by the plaintiff. Under such circumstances, in order to take back the documents, which were given by the plaintiff as collateral security, a necessity arose for making the payment of balance. Therefore awarding of subsequent interest at the rate of 6%, in the considered opinion of the Court, is not reasonable rate of interest. As far as the amount of Rs.2,72,500/- is concerned, the future interest from the date of decree till date of realisation is raised from 6% to 12% per annum. The judgment and decree of the trial Court in that regard has got to be modified. Accordingly, it is modified.
15.Insofar as the claim made by the plaintiff for a sum of Rs.82,62,849/-, which, according to him, was 1% sale commission for the turnover of the business conducted by the defendants at Hyderabad Branch, according to the plaintiff, his knowledge of textiles and textile business was thoroughly utilised by the defendants for opening a showroom at Hyderabad, and the entire work of assignment, the location of the shop and also the plans as to the decoration was entrusted with the plaintiff, and it was agreed that out of the sales turnover of the business, the defendants should pay 1% commission. The plaintiff has calculated this 1% commission as Rs.43,22,599/-, and according to him, the subsequent interest has accrued to Rs.39,40,250/-, and thus he has made the claim. The defendants have flatly denied the claim as false, barred by limitation and also hit under Order II Rule 2 of CPC. At this juncture, it is pertinent to point out that when the plaintiff originally filed the suit, this claim of Rs.82,62,849/- was not made. But the original plaint contained the relief clause in paragraph 20(c) as follows:
"Direct the defendants jointly and severally to pay to the plaintiff the sum to be ascertained from their book of records towards commission at 1% of the total sales annual turnover for 2 years commencing from 01.04.1994."
16.From the above it would be quite clear that it was a suit for rendition of accounts. Pending the suit, the plaintiff has filed an amendment application in Application No.2931/2007, and the same was allowed on 11.4.2007. After amendment, the following clause was substituted in the place of Clause 20(c) as referred to above.
"20.c. Direct the defendants jointly and severally to pay to the plaintiff, a sum of Rs.82,62,849.00p, together with interest thereon at 18% per annum from the date of Plaint till date of realization."
17.It has to be pointed out that the original claim of 1% commission, according to the plaintiff, was for a period of two years from 1.4.1994. In order to substantiate this claim that the plaintiff was entitled to have the commission from 1.4.1994 to 31.3.1996, as rightly pointed out by the trial Court, pointing to the turnover no material was placed. This amendment claiming a sum of Rs.82,62,849/- which, according to the plaintiff, would represent the commission earned out of the sales turnover of the Hyderabad Branch of the defendants 1 and 2 was made after a period of ten years and the said claim was based on the auditor's report pending the suit. When a suit was originally filed for rendition of accounts, the plaintiff cannot be allowed to alter or modify the suit for recovery of money beyond the period of limitation. It is true that the plaintiff sought for an amendment of the plaint, and the same was allowed. Needless to say merely because an application for amendment was ordered by the Court, it cannot be a reason for granting the decree in favour of the plaintiff in respect of the claim when it was found beyond time. In the instant case, the amendment was made only in the year 2007 and the claim of Rs.82 lakhs and odd was on the basis of sales turnover for a period of two years commencing from 1.4.1994. The contention put forth by the learned Counsel for the appellant/plaintiff is that the original plaint contained the necessary cause of action and also the necessary averments that the plaintiff's claim was for the recovery of commission at the rate of 1% as agreed between the parties and hence it is not a new claim made; and that even after the amendment, the original claim continued. As could be seen from the amended plaint, it was only a substitution of the relief clause. Once the claim was made beyond the period of limitation, law would mandate that necessary averments to save the period of limitation must be made. But, nothing is noticed in the case on hand. In such circumstances, the said claim was rightly rejected by the trial Court as barred by limitation.
18.Insofar as the next claim of Rs.29,60,000/-, it was towards the guarantee commission of Rs.20 lakhs together with interest at 24% thereon. The plaintiff has deposed that the defendants approached M/s.Bank of Baroda for CC limit of Rs.2 crores; and that on the request of the third defendant, the plaintiff offered his immovable properties namely 14 flats and only thereafter, the amount was sanctioned. The defendants have not denied the fact that they availed loan from Bank of Baroda, and it was the plaintiff who offered his properties as security for the sanction of the said loan. The further case of the plaintiff is that it was agreed that apart from the commission of 1% in the total sales turnover for a period of two years commencing from 1.4.1994, the defendants agreed to make a consolidated payment of Rs.20 lakhs as guarantee commission for furnishing collateral security by the plaintiff to the bank. The defendants have denied the said claim as false. In order to substantiate his claim, the plaintiff placed much reliance on Ex.P5 which, according to him, was a letter of undertaking incorporating the above terms. Not only the defendants averred in the written statement, but also the witnesses on their side have deposed that this document Ex.P5 was a fabricated one. According to the defendants, Ex.P5 is dated 10.4.1994, and in the year 1994, the first defendant firm was not carrying on the business at No.16, Nageswara Rao Road, T.Nagar, Chennai, and the plaintiff has taken advantage of having a letterhead of the first defendant firm which was originally given by the third defendant. Attacking Ex.P5, letter, it is contended by the learned Counsel for the defendants that a notice was issued by the plaintiff on 8.3.1997 under Ex.P6. When the relationship of the parties became strained already, the plaintiff could not have waited for a period of three years to make such a demand, and even in the letter Ex.P6, there is no whisper about Ex.P5. All would clearly show that it was a fabricated document. It would be more apt and appropriate to reproduce Ex.P5 which reads as follows:
"LETTER OF UNDERTAKING This is to confirm that, in respect of the collateral third party security furnished by you for our benefit, to M/s. Bank of Baroda, Jubilee Hills Branch, Hyderabad, towards a limit of Rs.2.00 Crores, we have undertaken to pay a sum of Rs.20,00,000/- (Rupees Twenty Lakhs only) as guarantee commission besides our agreed 1% commission on total sales turnover of M/s.Kumarans and Sri. Kumaran Stores, Hyderabad, for Two years, commencing from 01.04.1994., towards service charges, for formulating, arranging and conducting the Exhibition cum Sale at Ravindra Bharathi Hall, Hyderabad and towards services rendered as Executive for commencing the prestigious multi crore show room of M/s. Kumarans and Sri Kumaran Stores, at 'Amrutha Mall', II Floor, 6-3-1110, Somajiguda, Hyderabad.
While a full fledged stamped agreement to this effect, be executed in due course, this undertaking shall, however, remain irrevocable."
19.It would be abundantly clear that the claim of the plaintiff for the said sum of Rs.20 lakhs which, according to him, was the guarantee commission, would depend upon Ex.P5 document. This Court on scrutiny of the available materials and also the evidence, is of the considered opinion that Ex.P5 document was a genuine one. A perusal of Ex.P5 would indicate that it was dated 10.4.1994. Admittedly, Mr.P.J.Ethiraj was the partner of the first defendant M/s.Sri Kumaran Stores. Ethiraj as D.W.2 has candidly admitted at the time of the cross-examination that Ex.P5 letter contained his signature. Hence the defendants are duty bound to explain how such a letter with the signature of Ethiraj was handed over to the plaintiff. D.W.2 has made an attempt that for opening an account at Indian Overseas Bank at Adyar Branch, a blank letterhead signed by him was handed over to the plaintiff. It is not the case of the defendants that Ethiraj had got any account in the Indian overseas Bank at Adyar Branch. If so, only he could give a letter of introduction. Hence it was nothing but false explanation tendered by the first defendant in order to come out of the liability.
20.Equally the contention put forth by the defendants' side that the plaintiff has not whispered under Ex.P6 notice dated 8.3.1997, about Ex.P5 has got to be rejected since Ex.P6 letter reads as follows:
"Therefore I hereby call upon you to pay the non refundable amount of Rs.20 lacs as per your promise for the standing guaranties, for the amount you have borrowed from the Bank of Baroda...."
21.The above would be indicative of the reiteration of the original understanding as found under Ex.P5. It is true that it was understood by the parties under Ex.P5 that a full-fledged stamp agreement to the effect should be executed in due course; but, the same was not executed thereafter. In the considered opinion of the Court, there was an agreement between the parties as evidenced by Ex.P5 letter of acceptance. The non-execution of an agreement to that effect cannot be an impediment to refuse the relief since that claim was made on the strength of Ex.P5 letter of acceptance, which would indicate the agreement between the parties, and the claim is also made in time. Under the circumstances, the Court has to necessarily agree with the case of the plaintiff for granting the relief of the said claim of Rs.20 lakhs. Since it is a commission, the trial Court has found that the plaintiff was not entitled for interest on the guaranteed commission and has granted the relief of Rs.20 lakhs towards the guarantee commission with subsequent interest from the date of decree till date of realisation at 6% per annum which has got to be affirmed.
22.When the trial Court has found that the plaintiff is entitled to Rs.2,72,500/- and Rs.20,00,000/-, in the operative portion of the judgment it is stated as Rs.22,72,000/-. This has got to be made as Rs.22,72,500/-, and accordingly, it is amended.
23.In the result, with the above modification in the rate of interest i.e., from 6% to 12% on the claim of Rs.2,72,500/- and amendment in the decree amount namely Rs.22,72,500/- instead of Rs.22,72,000/-, OSA No.158/2008 is dismissed. OSA No.173/2008 is dismissed. In all other respects, the judgment of the trial Court is affirmed. The parties shall bear their own costs. Consequently, connected MP is also dismissed.
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