TMI Blog2016 (7) TMI 1680X X X X Extracts X X X X X X X X Extracts X X X X ..... vading payment of income-tax and sales tax; the trial court reported the matter to the Taxation Authorities; the High Court held that the court should have refused to entertain the suit on the ground of public policy as it involved directing the recovery of an amount found to be due to either party as a share of the profits which had been deliberately concealed by the parties from the books of account in order to evade the payment of taxes. It was further held that no court can countenance a deliberate evasion of the tax laws of the country and to lend the aid of the Court for recovering an amount which had been deliberately kept concealed by the parties in order to evade payment of the taxes due thereon. It was yet further held that if the court was to do so, it would amount to aiding and abetting of the evasion of the laws by the Court itself. It is not open to the defendant to before this Court contend that the monies which the defendant in its books of accounts and balance sheet has shown as loan from the plaintiff and repayable to the plaintiff (and on the basis whereof the defendant has been assessed for tax) are not a loan from the plaintiff but in the nature of gift fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod prior to the institution of the suit i.e. for total sum of Rs. 1,89,07,000/-, together with future interest at the rate of 18% per annum pleading (i) that the plaintiff company in response to the demand of the defendant for advance/loan, vide its cheque dated 19th May, 2010 advanced a sum of Rs. 48,00,000/- to the defendant; similarly, another advance of Rs. 1 crore was given vide cheque dated 6th September, 2010; (ii) that the Directors of the plaintiff company and the defendant company are related parties; (iii) that in the running account maintained between the parties, the said amounts were duly credited and debited to each other's account and as per the said account the sum of Rs. 1.48 crores is due from the defendant to the plaintiff; (iv) that the defendant has failed to pay the said amount despite demands; (v) that the duly audited balance sheet of the defendant admits and acknowledges the aforesaid amount to have been received by the defendant and re-payable to the plaintiff; and (vi) that the transaction being a commercial one, the plaintiff is entitled to interest at 18% per annum. 2. The suit was entertained and the defendant has contested the same by filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was the majority shareholder of the plaintiff and had suo motu made monetary contributions to the defendant company, 95% shares whereof had been gifted to Ms. Parul Gupta; (xiv) the monies advanced by the plaintiff company to the defendant company from time to time were at the instance of Shri Sudhir Sareen who was the majority shareholder and Director of the plaintiff company at that time; (xv) the monies advanced by the plaintiff company to the defendant company were described as advance in the financial books, only by way of accounting convenience, whereas actually the same were in the nature of gift, given out of natural love and affection between the father Shri Sudhir Sareen and the daughter Ms. Parul Gupta; (xvi) the said monies which were advanced, were never intended to be recovered as loan or to be re-paid and for this reason only neither of the two companies booked any interest on the said advances/amounts as payable expense or a receivable income; (xvii) Mr. Siddharth Sareen acting in the capacity of a Director enjoying a fiduciary position in the defendant company has stripped the defendant company of its assets; (xviii) that the monies advanced by the plaintiff compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SCALE 98 and Sheetal Fabrics Vs. M/s. Coir Cushions Ltd. (2005) V AD (Delhi) 240 but which do not deal with the controversy as has arisen, where the defendant also admits that as per its balance sheet also the amount which the plaintiff is claiming is shown as the loan from the plaintiff. 5. The counsel for the defendant then states that the suit is not within time. It is stated that the plaintiff along with the plaint has filed only the balance sheet of the defendant company as on 31st March, 2012 and this suit was filed on 8th December, 2015. 6. I have enquired from the counsel for the defendant, whether the defendant after 31st March, 2012 has been showing the said amount as loan from the plaintiff company and if not how has the said amount been dealt with in the balance sheet. 7. The counsel for the defendant states that he has no instructions in this regard. 8. I may in this regard notice that the plea of limitation is shown to be only in paras 2 and 9 of the preliminary objections in the written statement and which is found to be a bald one and the defendant company has not stated that after 31st March, 2012 the amount has not been shown as due to the plaintiff c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d whether a company incorporated to carry on business under its Memorandum and Articles of Association part with its funds or receive funds, without any consideration. 10. Though the counsel for the defendant company is unable to answer any of the aforesaid but states that if the corporate veil is pierced, the gift was from Shri Sudhir Sareen to Ms. Parul Gupta. 11. I have further enquired from the counsel, whether Shri Sudhir Sareen and Ms. Parul Gupta in their Income Tax Returns of the relevant year had shown the said money as given and received as gift. 12. The counsel then states that his plea is not that it was a gift but is that it was in the nature of gift . 13. The counsel merely reiterates what has been pleaded in the written statement. However the pleas drafted while sitting in chamber have to be substantiated before a Court on the basis of legal principles, law and precedents and none of which is being cited. I am unable to understand the argument of in the nature of gift . 14. The counsel for the defendant has then referred to Durga Builders P. Ltd. Vs. Motor And General Finance Ltd. to contend that the entries in a balance sheet can be explained and if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plaintiff company, the plaintiff company in the balance sheets for the subsequent period has been showing so. 20. The counsel for the plaintiff company in response states that the said auditor's report is only with respect to loans and not with respect to advances and the plaintiff company has throughout shown the said amount as advance to the defendant company. 21. The counsel for the defendant company adds that it has been shown as interest free advance to the defendant company. 22. Neither counsel is able to show any rule under the Income Tax Act or any practices prescribed by the Institute of Chartered Accountants of India in accordance wherewith the auditor's report is prepared. Without the same, the weightage to be given to the Note cannot be deciphered. Even otherwise, I am of the view that the same cannot wash away the liability of the defendant company reflected in its own balance sheet. 23. It is also the argument of the counsel for the defendant company that Ms. Parul Gupta has challenged the Will of Shri Sudhir Sareen under which Mr. Siddharth Sareen claims right to the shares of the plaintiff company and if the present suit is decreed immediately ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the defendant but it is however not for his sake that the objection is ever allowed; it is a general principle of policy which the defendant has the advantage of, contrary to the real justice as between him and the plaintiff, by accident. The principle of public policy was held to be ex dolo malo non oritur action i.e. no court will lend its aid to a man who founds his cause of action upon an immoral or an illegal act. It was further held that in a case in which the plaintiff must rely upon his own illegality, the court may refuse him assistance. Similarly in Surasaibalini Debi Vs. Phanindra Mohan Majumdar AIR 1965 SC 1364 it was reiterated that if the plaintiff seeks the assistance of the Court to effectuate an illegal transaction, the Courts will refuse assistance. Supreme Court in S.P Chengalvaraya Naidu Vs. Jagannath (1994) 1 SCC 1 also cautioned against allowing the process of the Court being used inter alia by tax evaders. 28. I am therefore of the view that it is not open to the defendant to before this Court contend that the monies which the defendant in its books of accounts and balance sheet has shown as loan from the plaintiff and repayable to the plaintiff (and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany should be treated as a quasi-partnership. The defendant here also, cannot be heard to submit that the monies aforesaid flowed not from plaintiff to defendant but from Sh. Sudhir Sareen to his daughter Ms. Parul Gupta. 32. I find Supreme Court, in Dr. A. Lakshmanaswami Mudaliar and Vs. Life Insurance Corporation AIR 1963 SC 1185 held that a Company is competent to carry out its objects specified in the Memorandum of Association and cannot travel beyond its objects. Finding the objects to be authorising the Company in that case, only to carry on Life Insurance business and to enter into contracts for that purpose and not finding the Memorandum of Association of the Company to be authorising the Company to make any donations, it was held that the same could not be traced to the residuary clause authorising the Company to do all other things as are incidental or conducive to the attainment of the main objects. It was further held that the act of the Company of making donations being not within the objects mentioned in the Memorandum of Association, the act of making donations was ultra vires and no legal relationship or effect could ensue therefrom. It is not the case of the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the entire decretal amount is made within three months, the plaintiff company shall not be entitled to any costs of the suit; however if no such payment is made, the plaintiff company shall also be entitled to costs of this suit. Counsel's fee assessed at Rs. 55,000/-. 38. Decree sheet be drawn up. CS(COMM) No. 27/2015. 39. This suit is for recovery of the principal amount of Rs. 1,30,43,901/- along with interest till the date of institution i.e. for total amount of Rs. 1,86,72,434/- with future interest. 40. I have enquired from the counsels for the parties whether there is any need to replicate the facts of the present suit in the judgment or it can generally be observed that the position in this suit is the same as the other suit and the decree as aforesaid can be passed. 41. The counsel for the defendant company has fairly stated that the position is the same save for the fact that in the present case there is an express admission on the part of the plaintiff that the loan was interest free and that the terms and conditions of re-payment of the principal amount of loan had not been agreed. 42. In this view of the matter, need to write a detailed judg ..... X X X X Extracts X X X X X X X X Extracts X X X X
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