BEFORE THE A.P.STATE CONSUMER DISPUTES REDRESSAL COMMISSION-HYDERABAD
F.A.No.1046/2005 AGAINST C.D.No.963/2004, DISTRICT FORUM-I, HYDERABAD.
Between-
P.Gyanchander, S/o.P.Mallesham
Aged about 47 years, Occ-Business
R/o.H.No.1-10-84, Flat No.304,
Mount Sansthoshi apartments,
Begumpet, Hyderabad. Appellant/Opp.Party No.5
And
1. K.Parvathalu, S/o.late Kashanna,
Aged about 76 years, Occ-Retd.
From Postal service,
R/o.H.No.1-2-593/45
Gagan Mahal Colony, Domalguda,
Hyderabad-29. Respondent/
Complainant
2. Vishnu Chits Pvt. Ltd., rep. by its
Managing Director, Regd. Office 312,
3rd floor, Liberty Plaza, Basheerbagh
Hyderabad.
3. L.Veeresh, S/o.not known,
Aged about Major, Occ-Managing Director
Of respondent No.2, R/o.B-20, Journalist Colony Respondents 2 to 5
Road No.1, Jubilee Hills, Hyderabad-34. are not necessary
parties
4. Smt.L.Manjula Vani, W/o.LVeeresh,
Aged about Major, Occ-Director of respondent
No.2 company, R/o.B-26, Journalist Colony,
Road No.1, Jubilee Hills, Hyderabad-34.
5. T.R.Venkatesh, S/o.not known,
Aged about Major, Occ-Director of respondent
No.2 company, R/o.H.No.35, PandT Colony,
Secunderabad. Respondents/
Opp.parties.
Counsel for the Appellant- Mr.S.Ravikanth
Counsel for the Respondent-- Respondent served.
QUORUM- THE HON’BLE SRI JUSTICE D.APPA RAO, PRESIDENT.
AND
SMT.M.SHREESHA, MEMBER.
THURSDAY, THE THIRTY FIRST DAY OF JULY,
TWO THOUSAND EIGHT.
ORAL ORDER- (Per Smt.M.Shreesha, Hon’ble Member)
---
Aggrieved by the order in C.D.No.963/2004 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 his marriage of his daughter and requested opposite party No.1 to settle and pay the said chit amount. Inspite 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 Oct.2003 to Dec.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 percent 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 exparte.
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 parties 1 to 5 jointly and severally to pay an amount of Rs.88,459/- with 12 percent interest from 1-1-2004 to 18-7-2004 and at 9 percent 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 filing 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 no way connected with the chit subscriber nor connection with the transaction admittedly 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, inspite 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 filing 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 judgement We rely on the judgement of the Delhi High Court reported in RAVIKANT and ANR. v. NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION in I (1997) CPJ 271 (DB) where in 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 Judgement i.e.
M.M.IPOH v. I.T. COMMISSIONER (AIR 1968 S.C. 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, not withstanding the absence of a specific provision for
action against those in charge 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 Muncipality v. E.T.Mazdoor
Union, (AIR 1970 S.C. 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 afore
mentioned 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, not withstanding 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 S.C. 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 San born, 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 or 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 judgement 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.
PRESIDENT. LADY MEMBER.
JM DATED 31-7-2008.
