THE COMMISSIONER OF INCOME-TAX vs. M/S SANSERA ENGG.PVT. LTD

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 14TH DAY OF OCTOBER, 2025 PRESENT THE HON'BLE MR. JUSTICE D K SINGH AND THE HON'BLE MR. JUSTICE RAJESH RAI K REGULAR FIRST APPEAL NO. 400 OF 2015 (MON) BETWEEN: 1(a) 1(b) 1(c) NARASIMHA MURTHY NAIK DEAD BY LR'S ASHARANI NAIK W/O SUNIL NAIK AGED ABOUT 44 YEARS NO.9, 2ND MAIN ROAD, A.E.C.S. LAYOUT ASHWANTHNAGAR, EXTENSION 2ND STAGE BENGALURU - 560 094 T.M. CHANDRASHEKHAR NAIK AGED ABOUT 46 YEARS APARTMENT LUMOS, C.TOWER NO. C-03, THIRD FLOOR, MUNICIPAL NO.20 (OLD NO.89 AND 91) INDUSTRIAL SUBURB YESHWANTHPUR BENGALURU-560 022. YATHIVENDRA NAIK AGED ABOUT 47 YEARS SUPARTHA COURT NO.146/8, 5TH CROSS Digitally signed by PANKAJA S Location: HIGH COURT OF KARNATAKA

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 RAJMAHAL VILAS EXTENSION BENGALURU-560 080. (AMENDED CARRIED OUT AS PER COURT ORDER DATED: 28.10.2024) …APPELLANTS (BY SRI. T. PRAKASH, ADVOCATE FOR A1(C)) AND:

J R SRINIVAS S/O LATE J.S. RAMESH, AGED ABOUT 40 YEARS, NO.3, 5TH CROSS, CUBBONPET, BENGALURU-560 002 …RESPONDENT (BY SRI. KIRAN V RON, ADVOCATE FOR SRI. ANANDITA MALATHI P AND SMT. SUKRUTHA R, ADVOCATE FOR C/R)

THIS RFA IS FILED UNDER SEC.96 OF CPC., AGAINST THE JUDGMENT AND DECREE DATED 9.12.2014 PASSED IN O.S.NO.6739/2009 ON THE FILE OF THE XXX ADDL. CITY CIVIL JUDGE, BENGALURU, DECREEING THE SUIT FOR RECOVERY OF MONEY.

THIS APPEAL, COMING ON FOR FINAL HEARING, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER: CORAM: HON'BLE MR. JUSTICE D K SINGH and HON'BLE MR. JUSTICE RAJESH RAI K

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 ORAL JUDGMENT (PER: HON'BLE MR. JUSTICE RAJESH RAI K) 1. The defendant in O.S.No.6739/2009 on the file of the XXX Addl. City Civil Judge, Bengaluru City (hereinafter referred to as "the Trial Court") has filed this regular first appeal challenging the judgment and decree dated 09.12.2024, by which, the said suit was decreed with costs as under: "The suit of the plaintiff is decreed for Rs.3,36,10,000/- (Rupees Three Crores Thirty Six Lakhs Ten Thousand only) with costs and interest at 24% p.a. on Rs.3,00,00,000/- from the date of suit till realization. The defendant shall pay the decreetal amount within a month from the date of this judgment." 2. For the sake of convenience, the parties are referred to by their ranks before the Trial Court. 3. The abridged facts of the case are as under: The case of the plaintiff is that he himself and the defendant - Narasimha Murthy Naik were the shareholders

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 and Directors of the aforesaid company along with other shareholders and Directors. Both the plaintiff and the defendant were holding 33.33% of shares each in the company. However, as some differences arose between them with respect to management of the company in 2008, the plaintiff filed a company Petition in C.P.No.16/2008 against the defendant and others before Company Law Board, Chennai, complaining of oppression and mismanagement. In order to resolve the deadlock, both parties agreed to settle the dispute amicably by dividing the suit schedule properties equally, each holding 50% of the company shares. 4. In furtherance of the same, they entered into a Memorandum of Understanding dated 24.05.2008 (MOU) along with sketch and as per the MOU, the defendant had to acquire shares from other share holders to make up his share holding to 66.666% and after such acquisition, he agreed to transfer 16.67% of shares to the plaintiff or his family members, so as to make the plaintiff holding 50%

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 of the shares with an intention to partition and divide the suit schedule properties equally amongst themselves for a total consideration of Rs.10 crores and thereby to become the owner of portion of suit schedule properties demarcated by letters ABCDEFA as shown in the sketch annexed to the MOU. As such, the plaintiff had paid Rs.3 crores as advance to the defendant on 24.05.2008 i.e., a sum of Rs.1,90,00,000/- in cash and Rs.10,00,000/-, Rs.25,00,000/- & Rs.75,00,000/- through cheques dated 21.03.2008, 22.05.2008 & 22.05.2008 of Canara Bank, Chickpet, in the presence of two witnesses namely, Sri.Gururaj, Executive Director of the aforesaid company and Sri.G.S. Chandrashekar, the share holder. 5. Further, it is stated that the plaintiff and the defendant thereafter discovered that the said MOU was void and unenforceable in law and they could not divide and partition the suit schedule properties even by holding 50% of the shares of the company, unless the company was liquidated. As such, the defendant assured the plaintiff

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 that the suit schedule properties fallen to the share of the plaintiff were free from encumbrances. However, the plaintiff came to know about the suit in O.S. No. 4862/2000 filed by one H.M. Rudramma and others for recovery of said portion of the suit schedule properties as the company was having only leasehold rights over the said properties. Therefore, the plaintiff issued a legal notice on 15.09.2008 seeking clarification, and the defendant on 22.09.2008 gave reply to the notice admitting that the suit schedule properties belonging to the company could not be partitioned or divided between themselves as per the MOU. 6. Further, it is stated that the plaintiff has addressed a communication to the defendant on 24.10.2008 seeking an amicable resolution, but the defendant did not transfer any shares as agreed in the MOU. The plaintiff then filed a petition C.P. No. 494/2008 before the Company Law Board, under Section 111(4) of the Companies Act to direct the company to rectify the Register of Members.

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 7. It is also stated that, in reply, the defendant also filed a counter to the said petition before the Company Law Board on 01.12.2008 and admitted the execution of MOU in the said counter by producing the copy of the MOU. Thereafter, the defendant met the plaintiff and assured amicable settlement with a promise to refund Rs.3 crores with interest by acknowledging that the MOU was void and unenforceable. Accordingly, the defendant sought time to repay the amount, but later sent a legal notice on 03.12.2008 claiming that the amount was forfeited due to the non performance of obligation by the plaintiff. It is also stated that though the defendant had admitted in the said notice that the MOU dated 24.05.2008 was void ab-initio, he issued the notice with a malafide intention to deprive the plaintiff and to enrich himself at the cost of plaintiff. 8. Thereafter, the plaintiff issued a notice on 16.03.2009 to the defendant stating that as the MOU was void and unenforceable and as there was no clause in respect of forfeiture in the MOU, the amount could not be

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 forfeited, and as such demanded for refund within 7 days from the date of receipt of notice. 9. It is also stated that the defendant has failed to comply with the demands of the plaintiff and on 19.03.2009, the defendant issued reply notice by stating that the said MOU was valid and enforceable for the transfer of shares, but void with regards to the suit scheduled properties, and thus he was entitled to forfeit the amount. 10. Further, it is stated that the defendant initially denied the receipt of Rs.1,90,00,000/- which was paid in cash in the presence of witnesses at the time of execution of MOU, however, this denial was an afterthought to wrongfully retain the said amount. The payment of Rs.1,90,00,000/- to the defendant was reflected in the plaintiff’s tax returns for the year 2009-2010, and the defendant had not denied the receipt of amount in earlier notices. Therefore, the

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 defendant is liable to repay the amount with interest at the rate of 24% from the date of demand. 11. It is also stated that the defendant failed to transfer 5% shares by the end of May 2008 as agreed, by breaching the terms of MOU and thereby, he cannot forfeit the amount. Hence, the plaintiff has filed the present suit seeking recovery of Rs.3,36,10,000/- with costs and interest at 24% p.a. on Rs.3 Crores from the date of suit till realization. 12. After registration of suit, suit summons was issued to the defendant and he appeared through counsel and filed a written statement denying the plaint averments as false, and contending that the suit was not maintainable and sought for dismissal with exemplary costs. 13. It was contended by the defendant that, the plaintiff had earlier filed C.P. No. 494/2008 before the Company Law Board, where he admitted that he was holding only 2,000 out of 30,000 shares. The petition was dismissed on

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 merits, and the plaintiff’s appeal in Company Appeal No. 12/2009 was also dismissed. The plaintiff had suppressed these facts, along with prior proceedings in C.P. No. 16/2008 and O.S. No. 7171/2008, which were withdrawn and therefore, the present suit was barred by law. 14. Further, it is contended that, the MOU reflects, that the company holds both freehold and leasehold rights, which cannot be partitioned among shareholders. Additionally, the plaintiff breached the terms of MOU by failing to transfer shares, and by not fulfilling his contractual obligations. Thus, the said MOU has been rescinded because the plaintiff failed to pay the full amount by 30.11.2008, and a notice was also issued upon him on 03.12.2008 stating that the Agreement has been rescinded and the advance consideration has been forfeited. Thus, the plaintiff is not entitled to claim said amount with interest at 24% p.a. and payment of Rs.1,90,00,000/-.

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 15. Further, it is contended that the plaintiff issued a legal notice on 15.09.2008, which was replied on 22.09.2008, and was involved in multiple disputes. The defendant claimed he did not receive Rs.3 crores from the plaintiff and issued a notice on 03.12.2008. The share transfer agreement was valid and binding, but the plaintiff breached its terms. The defendant replied to another notice dated 16.03.2009 with a response on 19.03.2009, stating that unenforceable parts of the contract can be severed, and the rest enforced. Also, the plaintiff’s payment of Rs.1.9 crores was not reflected in the 2009-10 IT returns, so the defendant argued he is not liable to pay the claimed amount. 16. The Trial Court on the basis of the pleadings of the parties framed the following points: "1. Whether the plaintiff proves that he paid a sum of Rs.3,00,00,000/- as advance including Rs.1,90,0,000/- by cash, to the defendant on the date of execution of Memorandum of understanding dtd.24- 5-2008 as contended?

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 2. Does the plaintiff further prove that the defendant promised to settle all issues amicably and promised to refund the Rs.3,00,00,000/- said sum of together with interest to the plaintiff, on the ground that MOU dated 24-5-2008 being void and unenforceable in law as alleged? 3. Whether the defendant is entitled to rescind the Agreement and forfeit the said sum of Rs.3,00,00,000/- for non-performance of his obligation by the plaintiff? 4. Whether the plaintiff is entitled to decree for Rs.3,36,10,000/- along with interest at 24% p.a. as prayed for? 5. What decree or order?" 17. In order to substantiate the case of the plaintiff, the plaintiff examined himself along with two witnesses as P.Ws.1 to 3 and produced the documents as Exs.P.1 to P.16. The defendant examined himself as D.W.1 and no documents were marked on his behalf. 18. After hearing the learned counsel for the plaintiff and on assessment of oral and documentary evidence, the Trial Court

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 answered issue Nos.1,2 & 4 in the ' affirmative', issue No.3 in the 'negative' and issue No.5 as per the aforesaid order. 19. The defendant, being aggrieved by the said judgment and decree has preferred the present appeal. 20. We have heard the learned counsel Sri. T. Prakash, for appellant No.1(c), learned counsel Sri V Ron, for Sri. Anandita Malathi P & Smt. Sukruta R, counsel for the respondent and also perused the records placed before us. 21. Learned counsel for the appellant/defendant vehemently contended that the Trial Court has grossly erred while decreeing the suit without properly appreciating the evidence on record. According to him, the plaintiff has utterly failed to prove the payment of Rs.1,90,00,000/- by way of cash to the defendant under Ex.P10 - Memorandum of Understanding. According to the learned counsel, a perusal of Ex.P10 depicts that the amount in figures is overwritten which creates a doubt in the claim of the plaintiff. He also contended that in the cross- examination of PW.1, though he stated that he has withdrawn Rs.1,90,00,000/- from the Bank account within a period of one

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 month and stated that he has documents to that effect, he has not placed any document/ statement of accounts to prove the said aspect. In such circumstance, the payment of Rs.1,90,00,000/- by way of cash was not proved by the plaintiff. 22. He further contended that the interest at 24% p.a. awarded by the Trial Court is totally exorbitant and without any basis and that even the plaintiff has also failed to tender any evidence to substantiate entitlement of interest at 24% p.a. With these submissions, he prays to allow the appeal. 23. Per contra, the learned counsel for the respondent-plaintiff supporting the impugned judgment contended that the Trial Court after meticulously examining the entire evidence on record passed a well reasoned judgment, which does not call for any interference at the hands of this Court. He further contended that the Memorandum of Understanding executed between the parties i.e., the plaintiff and the defendant dated 24.05.2008 as per Ex.P10 is not at all disputed by the defendant. Ex.P10 clearly reveals that the plaintiff had paid Rs.1,90,00,000/- to the defendant on different dates by way of

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 cash and the defendant had acknowledged the receipt of the same in the said Memorandum of Understanding. In such circumstance, the defendant cannot deny the payment of Rs.1,90,00,000/- merely because the amount in figures mentioned in the Memorandum of Understanding was overwritten, as it was duly signed by the defendant. 24. He also contended that the plaintiff in his evidence has clearly stated that he was financially sound and had sufficient amount in his Bank in the year 2008 i.e. while paying the amount to the defendant. Additionally, he placed reliance on Exs.P11 and P12 - the income tax returns to substantiate that he was financially sound and had the capacity to pay the amount to the defendant. In such circumstance, the mere denial of the amount received by the defendant without any document does not hold good. 25. He also contended that since the plaintiff paid huge amount to the defendant, the transaction comes within the ambit of commercial transaction and therefore, the Trial Court has rightly awarded interest at 24 % p.a.

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 26. Having heard the learned counsel for the respective parties and on perusal of the materials placed before us, the sole point that arises for our consideration is: Whether the Trial Court is justified in decreeing the suit of the plaintiff for recovery of money along with interest at 24% p.a. from the date of suit till realisation? 27. It could be gathered from records that the execution of Memorandum of Understanding between the plaintiff and defendant as per Ex.P10 is not disputed by the defendant. On perusal of Ex.P10, the same reveals that the plaintiff had paid Rs.1,10,00,000/- by way of cheques and Rs.1,90,00,000/- by way of cash i.e. a total sum of Rs.3,00,00,000/- to the defendant in order to transfer 5 % of share to him in the Gururaj Enterprises Pvt. Ltd Company. The defendant has affixed his signature on Ex.P10. Though it is contended by the learned counsel for the defendant that the amount mentioned in the MOU has been overwritten, the same were signed by the parties. 28. The other contention raised by the learned counsel for the appellant that the plaintiff had not produced any documents to

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 prove that he has withdrawn a sum of Rs.1,90,00,000/- from his Bank and paid to the defendant is concerned, the plaintiff has clearly stated in his evidence to the said aspect and placed Exs.P11 and P12 - income tax returns to substantiate that he was financially sound to make payment of Rs.1,90,00,000/-. The said evidence of the plaintiff was not rebutted by the defendant by placing any documents or with probable defence. In such circumstance, we are of the view that the Trial Court has rightly appreciated the evidence and documents and decreed the suit. 29. However, as far as awarding of interest at 24% p.a., the same sounds exorbitant in the peculiar facts and circumstance of the case. In such circumstance, interference is required in the impugned judgment only with regard to awarding of interest at 24% p.a. by the Trial Court. Accordingly, we pass the following: ORDER i. The appeal is dismissed. ii. The impugned judgment and decree dated 09.12.2014 passed by the Trial Court in O.S.No.6739/2009 is modified only to the

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HC-KAR NC: 2025:KHC:41629-DB RFA No. 400 of 2015 extent of 11% p.a. instead of 24% p.a. from the date of suit till the date of judgment and decree passed by the Trial Court and thereafter till payment to the plaintiff. iii. Rest of the judgment and decree of the Trial Court remains undisturbed. iv. The amount deposited by the appellant before this court, which was ordered to be kept in fixed deposit on 18.10.2016, shall be transferred to the Trial Court along with interest accrued in the fixed deposit. SD/- (D K SINGH) JUDGE SD/- (RAJESH RAI K) JUDGE PKS List No.: 1 Sl No.: 26