NORMAN J HAMILTON Vs. UMEDBHAI S PATEL

JUDGEMENT

(1.) This is a suit filed by the plaintiffs to recover from the defendants a sum of Rs. 53,500 together with interest.

(2.) The plaintiffs had entered into an agreement with the defendants dated 23rd December, 1966, where under the plaintiffs had agreed to sell to defendants Nos. 1 to 4 - "1,000 ordinary and 2,300 redeemable cumulative preference shares "of a company known as A. MacRae and Co. Private Ltd. for a total price of Rs. 3,10,000. Out of these shares, 125 ordinary shares and 520 redeemable cumulative preference shares belonged to one Mrs. Khambatta, who was a non-resident. Hence it was agreed between the parties that if there was any difficulty in the sale of the shares belonging to Mrs. Khambatta, defendants Nos. 1 to 4 would purchase in any event 875 ordinary shares and 1,780 redeemable cumulative preference shares of the company from the plaintiffs for a price of Rs. 2,77,500. Out of this purchase price, Rs. 10,000 was to be paid on the signing of the agreement and the balance of Rs. 2,67,500 was to be paid by 10 equal annual installments of Rs. 26,750. The first of such installments was to be paid on or before 31st December, 1967, and the subsequent installments were to be paid on or before 31st December of each succeeding year till the entire price was paid to the plaintiffs. The 5th defendant guaranteed the above payments to the plaintiffs. Accordingly, the plaintiffs sold and delivered to defendants Nos. 1 to 4 - "875 ordinary and 1,780 redeemable cumulative preference shares" of A. MacRae and Company. Defendants Nos. 1 to 4 paid to the plaintiffs a sum of Rs. 10,000 on the signing of the agreement. They however, did not pay any of the annual installments as agreed between the parties. The present suit is to recover the amount due to the plaintiffs under the fourth and the fifth installments. Apparently, the agreement does not contain any provision regarding acceleration of payment in the event of a default. Hence, separate suits have been filed by the plaintiffs to recover the amounts of the installments as and when the amounts became due.

(3.) The defendants have admitted the above facts. Their defence, however, is that at the time when the agreement was entered into, the plaintiffs had represented to the defendants that there was no existing liability of the company. It was on the basis of this representation that the defendants purchased the above shares, which admittedly gave a controlling interest in the above company to the defendants (the only other shareholder being Mrs. Khambatta). The defendants, however, after the purchase of these shares received notices from third parties and from sales tax and income-tax authorities making large claims against the company for taxes and penalty for a period prior to 1966. In their written statement, the defendants have not given any particulars about the notices from third parties. They have, however, stated that the income-tax department by its notice dated February 7, 1968, reopened the company's assessment for the years 1958-59 to 1962-63 and passed reassessment orders in February and March, 1971. They have also received a notice of demand dated February 14, 1975, from the income-tax authorities for Rs. 8,63,509. They have also stated that in or about December, 1966, the sales tax authorities seized the books of the company and made a heavy demand amounting to several lakhs of rupees in respect of the sales tax dues of the company for a period prior to the sale of the said shares. The defendants have, therefore, claimed that they have suffered damages to the extent of at least the entire purchase price of the shares. They have claim that under s. 59 of the Sale of Goods Act they are entitled to a reduction in price in view of these discoveries of debts and the entire price is now extinguished. The defendants have also pleaded that under the provisions of the Securities Contracts (Regulation) Act, 1956, the above contract for the purchase of shares is illegal and it cannot be enforced.