Shekhar B.Saraf - (1.) G.A No. 725 of 2019 in C.S No. 50 of 2019 and G.A 733 of 2019 in C.S No. 51 of 2019 are both taken up for hearing simultaneously as the two applications are relating to similar cause of action in relation to the same plaintiff/company (hereinafter referred to as "the petitioner") and a common defendant. In C.S 50 of 2019 the common defendant is the defendant no. 5 while in C.S 51 of 2019 the common defendant is defendant no. 2. This defendant is the employee of the plaintiff company (hereinafter referred to as "the employee"). Defendant no. 1 in C.S 50 of 2019 is a partnership firm while defendants 2 to 4 are the partners of the above partnership firm. These defendants were acting as distributors for various goods of the plaintiff company under the flagship brand of "Tata Paras". Similarly in C.S 51 of 2019 the defendant no. 1 is the distributor company. The defendant no. 1 to 4 in C.S No. 50 of 2019 and the defendant no. 1 in C.S 51 of 2019 are hereinafter referred to, for the sake of convenience, singularly as "the distributor no. 1" and "the distributor no. 2" respectively and jointly as "the distributors".
(2.) At the very outset, it is to be stated that this matter is being heard at the ad interim stage. I had given an option to the defendants in both the suits to file short affidavits providing an undertaking that they shall not alienate their immovable property pending disposal of the interlocutory applications. However, the defendants refused to do so and desired to argue the matter out without filing any affidavits as they were unwilling to give any undertaking at this stage.
(3.) The brief facts of the case are narrated below to come to a proper understanding of the present matter:- A. The petitioner is engaged in the business of manufacturing and marketing of industrial chemicals, nutraceuticals and agricultural solutions including fertilizers. The petitioner has appointed dealers throughout the country to facilitate the sale of these products. The distributors are engaged in purchase of these products from the petitioner for sale in various parts of West Bengal. The employee of the petitioner had served in various positions including as a Senior Accounts Officer and finally served as Deputy Manager (Accounts). B. In order to promote sale of its products, timely payment of dues and to compensate dealers for arranging their own transport, including expenditure incurred by them towards freight, local handling charges, lifting charges and the like, the petitioner in its usual course of business provided for rebates and discounts. Such rebates and discounts were accounted and labelled as 'credit' or 'credit note/s" in the SAP system of the petitioner. Providing of such rebates and/ or discounts is a usual practice followed in the agriculture solutions industry. The credit notes which were issued to dealers were adjusted against the dues of such dealers to the petitioner on account of the price to be paid for supply of the petitioner's products. C. The petitioner had periodically issued price circulars for different fertilizers wherein the amounts of discounts/rebates were predetermined. The rebates and discounts, which were referred to as 'credit" or "credit note/s" in the SAP system of the petitioner, were solely determined from the price circulars issued by the petitioner for various fertilizers and different products. Price circulars, as and when issued by the petitioner, were intimated and furnished to the Sales Managers of the petitioner, who, thereupon informed the sales executives of the respective territories of such price circulars. The respective sales executives informed all dealers within their territory about the price circulars issued by the petitioner. No other discounts or rebate of any manner whatsoever was provided by the petitioner, other than the ones indicated in the price circulars. D. The accounts managers of the petitioner issued credit notes on the basis of the price circulars in the SAP system of the petitioner. Once credit note was issued/passed, the balance dues payable by the dealers to the petitioner stood reduced to that extent. E. The distributors had been involved with the petitioner for more than two decades. The aforesaid policy of discount and/ or rebate had been extended to the distributors based on the price circulars in respect of bulk fertilizers issued by the petitioner. F. The employee of the petitioner as part of his job responsibility, used to calculate and extend the benefit of such rebates and discounts, inter alia, to the distributors, which were determined as per price circulars issued monthly, in respect of each of the products, depending upon the business requirements and management decisions of the petitioner. The extent of discounts and rebates in the form of credit notes in favour of the dealers (including the distributors) used to be uploaded in the SAP system of the petitioner by the employee using the unique login ID assigned to him by the petitioner. G. In or about October, 2016, the regional accounts team of the petitioner discovered that the employee had issued credit notes to the distributors in excess of its entitlement and the same were reversed subsequently in December, 2016 by the employee and the petitioner accepted such excess rebates to be a bona fide error on the part of the employee. However, in July 2017, while verifying the accounts, certain anomalies were again detected in the accounts of the petitioner, with respect to the credit notes issued. Upon further scrutiny, it was discovered that the employee had passed and issued substantial credit notes to the distributors in excess of their entitlement. Therefore, the distributors had benefitted, by way of reduction in their outstanding dues owed to the petitioner, in excess of that what they were entitled to by way of rebates and discounts. H. On being confronted, the employee had admitted to the errors committed in recording entries during the period October, 2016 to June, 2017 and stated that these recording entries had been incorrectly made by him due to his carelessness and negligence. This admission is recorded by an email dated July 25, 2017 sent by him to the Controller agri business of the petitioner. I. The petitioner, thereafter, conducted an internal review to verify the excess credits passed by the employee during the last three years wherein further details of misdemeanour and fraud by the employee came to light. The employee was accordingly suspended on September 5, 2017. The petitioner, however, continued to do business with the distributors on an advance against delivery basis from July 2017 onwards. J. The plaintiff company appointed a well known audit firm by the name of KPMG on October 19, 2017 to conduct an investigation into the entire transactions relating to issue of excess credit given by the employee to all the dealers of the petitioner. K. With respect to C.S No. 50 of 2019, a meeting was held between the representatives of the petitioner and the distributor no. 1 on November, 14, 2017. Minutes of the said meeting recorded the admission of the distributor that in the event there were any excess credits passed on to the distributor, refund of the same shall be done by them. It is to be noted that the minutes of this meeting along with the month wise reconciliation of accounts statements for the period 2015-16 and 2016-17 were emailed to the distributor. Subsequently, an ad hoc payment of Rs. 1 crore was made by the distributor to the petitioner. Thereafter, one of the partners (respondent no. 3) of the distributor no. 1 came for a meeting on February 9, 2018 with the petitioner and admitted to having received excess credit notes for the sum of Rs. 26 crores for the financial years 2015-2016 and 2016-2017. In his admission letter, he further stated that the employee had colluded with him and in exchange for the excess credit the employee received cash payments of approximately Rs. 3 crores. To show bona fide, a further payment of Rs. 50 lakhs was made by the distributor to the plaintiff company on that date itself. L. The partner of the distributor no. 1 thereafter on February 14, 2018 sent an email retracting the statement made on February 9, 2018 and alleged that the said statement had been made by him under duress and coercion. M. With respect to C. S. No. 51 of 2019, a meeting was arranged between the petitioner and the representative of the distributor no. 2 on February 19, 2018 at the office of the petitioner. The representative of the distributor no. 2 had been told that aberrations and irregularities were found in the dealership ledger statement of the distributor no. 2. The petitioner had also stated that credit notes in excess of the entitlement of the distributor no. 2 had been illegally issued and passed on to the distributor no. 2. Upon this, the representative of the distributor no. 2, of his own free will and without any protest, acknowledged receipt of excess credit notes and offered to refund the same in instalments. The representative of the distributor no. 2 had also admitted that in August 2017, excess credit notes of Rs. 69,27,600/- (Annexure 'H' of G.A. No. 733 of 2019) had been credited to the distributor no. 2 by the employee. The representative of the distributor no. 2 had stated in his admission letter dated February 19, 2018 that out of the said sum of Rs. 69,27,600/-, a sum of Rs. 9,05,161/- had already been paid by the distributor no. 2 to the petitioner. The representative of the distributor no. 2 also undertook and agreed to pay the balance sum of Rs. 60,22,439/- in monthly instalments of Rs. 5,00,000/-. However, the distributor no. 2 failed and neglected to make repayments of the excess credit notes received illegally through the employee. N. By a letter dated March, 27, 2018 (Annexure 'I' of G.A. No. 733 of 2019), issued to the distributor no. 2, the petitioner, on the basis of further enquiry, informed the distributor no. 2 that excess credit received by the distributor no. 2 during the financial years 2014-15 to 2017-18 (till June 2017) was to the tune of Rs. 2,49,87,636/-. The petitioner, along with the letter of March 27, 2018, had also forwarded a reconciled ledger statement, after making adjustments to subsequent payments made by the distributor no. 2. O. The dealings between the petitioner and the distributor from July, 2017 till the time the petitioner stopped business with the distributor no. 2, resulted in total adjustments and payments of a sum of Rs. 3,66,06,076/- being made by the distributor no. 2 to the petitioner and the petitioner supplying goods worth a total sum of Rs. 3,22,28,115/- to the distributor no. 2. Upon making adjustments, including of the repayments made by the distributor no. 2, a total sum of Rs. 43,77,961/- remained to the credit of the distributor no. 2 with respect to such dealings. The petitioner did not refund such sum to the distributor no. 2 and instead adjusted the same towards its outstanding from the distributor no. 2 referred to in para N above. P. KPMG, the audit firm entrusted with carrying on the investigation issued its report on March 20, 2018. With respect to the employee the KPMG report revealed the following :- a) The employee had made aggregate Cash Deposits in excess of Rs. 1.27 crores in different bank accounts. The employee had several banks accounts, and the sums in excess of Rs. 1.27 crores had been deposited on review of bank statements of only around 10 bank accounts. b) The employee had incurred expenditure of approximately Rs. 50 lakhs from his VISA Regalia credit card. c) The employee had made aggregate cash deposits in excess of Rs. 64 lakhs during the period of demonetization, that is, between November, 2016 and January, 2017. d) Income tax returns of the employee for the assessment years 2015-2016 and 2016-2017 reflect gross total income of only Rs. 6,95,160/- and Rs. 7,69,284/- respectively. e) The employee had made aggregate payments in excess of Rs. 45 lakhs towards premia for insurance policies. f) The employee had invested aggregate sum of excess of Rs. 32 lakhs towards mutual funds and fixed deposits. g) Equity transactions of around Rs. 3.42 crores had been carried out in the account of Pradip Kumar Singh (the father of the employee) in the financial year 2016-2017. h) The employee had purchased jewellery worth around Rs. 47 lakhs using his credit card and bank accounts. i) Public provident funds deposits in excess of Rs. 4 lakhs had been made by the employee during the material time. Q. The KPMG report further revealed various emails exchanged between the employee and the distributors that clearly revealed that excess credit notes had been issued by the employee and the difference between the actual credit notes and the excess credit notes were clearly indicated in the statements exchanged. The above emails indicated the exact amount of excess credit being passed on and the same being recorded. R. The plaintiff company filed a criminal complaint on April 26, 2018 against the distributors and the employee under Section 120B, 406, 408, 420, 467, 468, 471 and 477A of the Indian Penal Code, 1860. S. In the meantime, the plaintiff company appointed BDO India LLP (hereinafter referred to as "BDO") to identify the gross discrepancies in accounts and the fraud and also conduct forensic audit in relation to the excess credit note scam that had been discovered earlier. The BDO prepared its final report and submitted the same to the plaintiff company on February 4, 2019. The BDO report identified the amount of excess credit notes during the financial years 2014-2015 to 2017-2018 (till June, 2017). The findings of the BDO report with regard to the excess credit notes are provided below in relation to both the suits:- C.S. No. 50 of 2019 JUDGEMENT_95_LAWS(CAL)7_2019_1.html C.S. No. 51 of 2019 JUDGEMENT_95_LAWS(CAL)7_2019_2.html T. After giving credit for the sums paid by the distributors, the sum of Rs. 28,25,48,558/- became payable from the distributor no.1 and Rs. 2,58,68,781/- payable by the distributor no. 2. The decree sought in both the plaints further includes the interest payable on the above dues till March 5, 2019.;