Calcutta High Court
Lindsay International Pvt. Ltd. & Ors vs Laxmi Niwas Mittal & Ors on 18 September, 2017
Author: Soumen Sen
Bench: Soumen Sen
IN THE HIGH COURT AT CALCUTTA
Ordinary Original Civil Jurisdiction
ORIGINAL SIDE
BEFORE:
THE HON'BLE JUSTICE SOUMEN SEN
G.A. No. 1951 of 2017
C.S. No. 2 of 2017
LINDSAY INTERNATIONAL PVT. LTD. & ORS.
VS.
LAXMI NIWAS MITTAL & ORS.
For the Plaintiff : Mr. S.K. Kapoor, Sr. Adv.,
Mr. Jay Saha, Sr. Adv.,
Mr. Ravi Kapur, Adv.,
Mr. Shaunak Mitra, Adv.,
Mr. S.R. Kakrania, Adv.,
Mr. Sanjeeb Seni, Adv.
Mrs. Priyanka Prasad, Adv.,
Mr. Arkadeb Biswas, Adv.
For the Defendant No.1 : Mr. P. Chidambaram, Sr. Adv.,
Mr. Siddhartha Datta, Adv.,
Mr. Bodhisatta Biswas, Adv.,
Ms. Surabhi Binani, Adv.
Hearing Concluded On : 04.09.2017
Judgment On : 18th September, 2017
Soumen Sen, J.:- The defendant no. 1 is the applicant.
This is an application for revocation of leave under Clause 12 of the
Letters Patent and for dismissal of suit on the ground that the plaint does
not disclose any cause of action against the defendant no.1.
The contention of the defendant no.1 is that according to the plaintiffs
there was a pre-incorporation agreement between the plaintiff no.1 and the
defendant no.1. The pre-incorporation agreement as alleged in paragraph 6
of the plaint does not exist. The plaintiffs have failed to produce any
document which reflects the terms mentioned in paragraph 6 of the plaint.
In absence of any document evidencing such pre-incorporation agreement it
has to be assumed that the plaintiffs do not have any cause of action
against the defendant No.1 based on such non-existent pre-incorporation
agreement. The Court cannot grant any relief on a mythical hypothetical
agreement.
Mr. P. Chidambaram, the learned Senior Counsel appearing on behalf
of the petitioner submits that the Specific Relief Act, 1963 in Section 15(h)
has recognised pre-incorporation agreement. A pre-incorporation agreement
must be incorporated in the terms of the actual incorporation of the
company. The Memorandum and Articles the Association of the plaintiff
no.1 company do not contain any of the descriptions, discussions and/or
representation averred in paragraph 6 of the plaint. Though, the plaint at
paragraph 8 refers to MOA and AOA of the plaintiff no.1, the said
documents were not produced along with the plaint. The plaintiff also does
not rely upon the said document to assert that the alleged pre-incorporation
agreement subsists. Inducing one person not to contract with other may,
however, become tortious if unlawful means are used or threatened.
In fact, the averments made in the plaint describing the later
developments with regard to the shareholding of the plaintiff no.1 company
itself would indicate that the plaintiffs do not have in support of the reliefs of
specific performance of the alleged pre-incorporation agreement against the
defendant no.1 nor does the plaint discloses any such cause of action in
relation to the said relief. In amplifying Mr. Chidambaram submits that
neither MOA nor AOA of the plaintiff no.1 contain any terms reflecting the
alleged pre-incorporation agreement. At the relevant time the defendant no.1
held 75% shareholding in the plaintiff no.1 company through a holding
company named Benhill Finance Limited. In August, 2002, Benhill Finance
Limited ceased to be a shareholder of the plaintiff no.1 company. The entire
shareholding of Benhill Finance Limited in the plaintiff no.1 company was
transferred by way of gift to the plaintiff no.2 and 3, who became 100%
shareholders of the plaintiff no.1. The plaintiff nos. 2 and 3 continued to be
100% shareholders of the plaintiff no.1 from August, 2002 right up to
January, 2010. A new shareholders Agreement dated 21st January 2010
was executed between the plaintiff nos. 2 and 3 and the defendant no.3 in
relation to the shareholding of the plaintiff no.1 and their mutual rights and
obligations. The defendant no. 3 became a 25% shareholder of the plaintiff
no.1 in terms of this shareholders' Agreement. The Shareholders'
Agreement provides that it is the entire agreement between the parties. The
learned Senior Counsel has referred to Clause 16 of the Amendment
agreement dated 29th February, 2016 to show that the said clause reiterates
that the amendment constitutes the entire agreement between the parties
relating to its subject matter and is in substitution of any previous written
or oral agreement/understanding thereon between the parties. The
defendant no.1 is not a party to the shareholders' Agreement. The
Shareholders' Agreement is on record. The plaintiffs have not produced any
other agreement. The terms of the Shareholder's Agreement are expressly
contrary to the contents of paragraphs 6 and 29 of the plaint. Accordingly,
the pre-incorporation agreement as pleaded at paragraph 6 does not disclose
and cannot constitute any cause of action against Defendant no.1. The
terms of the Shareholders' Agreement are in fact contrary to the pre-
incorporation agreement as pleaded in the plaint.
Mr. Chidambaram submits that in paragraph 6 of the plaint the
plaintiff has essentially pleaded three things namely (i) procurement has to
be done by the Arcelor Mittal Companies exclusively through the plaintiff
no.1 company; (ii) this is an agreement in perpetuity; and (iii) there is a
negative covenant which prohibits the Arcelor Mittal Companies from
dealing directly with the Defendant nos. 39 to 42 in India.
On the contrary, the Shareholders' Agreement in clause 2.9.1 and
clause 16 clearly record that it is not an exclusive arrangement and is
terminable.
It is submitted that a bare reading of the said agreements would
clearly show that there is no negative covenant and it provides that in
certain cases, the Arcelor Mittal Companies (procuring companies) can
resort to direct buying as permitted under Clause 2.15.4. In Clause 28 it is
specifically stated that it is the entire agreement between the parties and
there can be no reliance on any previous discussions and representations.
If the plaintiffs still seek to prove that paragraph 6 is the pre-
incorporation agreement, the same would be barred in law because no
evidence is admissible of such oral agreement in view of the written
Shareholders' Agreement. The learned Senior Counsel has referred to
Sections 90 and 91 of the Evidence Act, 1872 in this regard.
Mr. Chidambaram submits that the only agreement produced with the
plaint is a Shareholders' Agreement dated 21st January, 2010 along with an
Amendment no.1 to the said agreement dated 29th February, 2016. The
Shareholders' Agreement along with the Amendment No.1 have been
thoroughly analysed by this Court while considering G.A. no. 117 of 2017.
This Court has made very important observations/findings based on the
document being the Shareholders' Agreement, as amended which are
summarised as follows:-
(a) The Shareholders' Agreement dated 21st January 2010 would
be considered to be the whole agreement superseding all other
agreements. The Shareholders' Agreement shall be treated to be the
whole agreement superseding all earlier agreements.
(b) The reading of the Shareholders' Agreement and the
amendment agreement does not bring out a case of express or implied
negative covenant.
(c) There cannot be any doubt that for over a decade a particular
course of action was adopted notwithstanding the written terms in the
agreement but that by itself would not be sufficient to grant an order
of injunction more so when there is a lack of trust and faith between
two groups of shareholders. Contracts involving trust and confidence
like contracts of agency are determinable by nature.
(d) There is no presumption of permanence of duration in any
type of contract, and the question whether the contract is
determinable depends upon the proper construction of the contract in
every case and a commercial contract is determinable.
It is submitted that the Shareholders' Agreement as amended contains
express clauses that provide for a non-exclusive arrangement based on a
best endeavour basis and terms regarding the mutual adjustment of the
rights and obligations of the parties to the Shareholders' Agreement. In the
judgment dated February 17, 2017 also it has been held that the amended
clause (2.15.6 added by Amendment no.1) provides that Arcelor Mittal
Companies have a right to procure directly from the suppliers if an offer or
contract presented by Lindsay is not technically satisfactory or commercially
competitive.
The Shareholders' Agreement is a terminable agreement. The
Shareholders' Agreement was terminated twice. It was terminated initially
by the Defendant no.3 by stating so in a petition (being A.P. no.1034 of
2016) under Section 9 filed by the Defendant no.3 and again through its
letter dated 3rd March, 2017. The learned Senior Counsel has relied upon
Indian Oil Corporation Ltd. v. Amritsar Gas Service & Ors, reported at
(1991) 1 SCC 533, paragraph 12 to submit that the contract of this
nature is terminable.
It is submitted that in view of the aforesaid no specific performance in
terms of the prayer (a) or (c) of the plaint could be granted against the
defendant no.1.
The next submission is that the shareholders' Agreement does not
contain any negative covenant. Even the pre-incorporation agreement as
alleged in paragraph 6 of the plaint does not exist and is not subsisting.
Accordingly there cannot be a negative covenant without an agreement. Mr.
Chidambaram has referred to the decision of the Hon'ble Supreme Court in
Hardesh Ores Pvt. Ltd. v. Hede & Company, reported at (2007) 5 SCC
614, paragraph 30, 31, 33, 37 and 39 and submitted that it is well
established that for enforcement of the negative covenant, it presupposes
the existence of a subsisting agreement. Accordingly prayers (g) (q) and (s)
based on such negative covenant which does not exist, cannot be granted.
It is submitted that the contention of the plaintiffs that the defendant
no. 1 has colluded and conspired to ensure that Arcelor Mittal Companies
do not procure the goods and services from the plaintiff no.1 company but
procure the same form some other companies is vague and without any
particulars.
Mr. Chidambaram has referred to Order VI Rule 4 of the Code of Civil
Procedure Code and submits that it is well settled that allegations of such
nature has to be supported by sufficient particulars and mere use the words
fraud, collusion, conspiracy and fraudulent transactions without any
foundational pleadings and particulars does not constitute a cause of action.
The learned Senior Counsel has referred to the decision of the Hon'ble
Supreme Court in ITC v. Debt Recovery Tribunal reported at AIR 1998 SC
634, paragraphs 23, 27 and 29 and submits that it has been clearly
stated in the said decision that mere use of the said words without giving
particulars would not constitute a cause of action based on such allegations.
The attempt of the plaintiff to shift their case of breach of contract and
specific performance to tortious interference and procurement of breach of
contract is again not supported by the averments made in the plaint. The
meaningful reading of the entire plaint makes it clear that the basic
grievance of the plaintiff is that since April 2016, the Arcelor Mittal
Companies have not placed purchase orders i.e. new contracts on the
plaintiff no.1 and are directly entering into contracts with the suppliers. The
past transactions have been described in the plaint at paragraph 10(c) and
paragraph 12. Each contract was on a principal to principal basic between
the plaintiffs and the respective Arcelor Mittal Companies. The plaintiff no.1
in turn entered into separate contracts with the Suppliers from time to time.
It has been admitted in the plaint that there is no contractual privity
between all the defendants. The ingredients of tortious interference are:
Firstly, there needs to be a contract which is clearly identifiable. Secondly,
defendant must have knowledge of the existence of the contract. Thirdly,
the breach of such contract must be caused by unlawful means. Fourthly,
damages were occasioned to the plaintiff due to such breach. A breach of an
existing contract is a fundamental requirement for the tort of inducement.
The learned Senior Counsel has relied upon Bullen & Leake & Jacob's
Precedents of Pleadings, Fourteenth Edition, Vol.2 (2001) paragraphs
51-01 and 51-05 at pages 833 and 834 respectively in this regard.
It is submitted that in this case the very first element is not
identifiable in the plaint that is to say: which is the agreement/contract of
which the tortious interference is alleged by the plaintiffs?
The learned Senior Counsel submits that the plaintiffs are inviting the
court to invent a hypothetical contract to sustain its claim in the face of
non-existence of the pre-incorporation agreement. It is not the case of the
plaintiffs in the plaint that defendant no.1 has procured the breach of any of
the procurement purchase orders placed by the Arcelor Mittal Companies on
the plaintiff no.1 or any of the supply purchase orders placed on the
defendant Nos.39 to 42 by the plaintiff no.1. In fact, all the purchase orders
and supply orders have been performed.
It is not the case of the plaintiffs in the plaint that defendant no.1 has
procured the breach of the Shareholders' Agreement dated 21st January
2010 as amended by Amendment No.1 dated 29th February, 2016. In fact
the Shareholders' Agreement has been terminated by the defendant no. 3.
Furthermore, it is an established position that there is no "tort of
wrongfully inducing a person not to enter into a contract" as held in
Midland Cold Storage Ltd. v. Steer & Ors. reported at 1972] Ch. 630 at
645 and referred to in Bullen & Leake & Jacob's Precedents of Pleadings
(supra).
Furthermore, the relief of damages at prayer (I) of Rs.750 crores has
been claimed only against the defendant Nos.2 to 38 and not against
defendant no.1. As regards the relief of damages sought at prayer (n) it
refers to paragraphs 38 to 47 which primarily deal with defendant Nos. 39 to
42 and not defendant No.1. The reference to defendant no.1 has been made
at paragraphs 45 (hh), (ii), (II), (mm) without specifying which is the contract
of which there was a procurement of breach. The Shareholders' Agreement
itself has not been breached, and in fact, it has been terminated as
acknowledged in the plaint.
Order VII Rule 11(a) of the CPC requires the plaintiff to incorporate in
the plaint the facts constituting the cause of action. The 'cause of action' is
a bundle of facts which taken with the law applicable to them gives the
plaintiff the right to relief against the defendant. Mr. Chidambaram has
placed reliance on Chruch of Christ Charitable Trust and Educational
Charitable Society v. Ponniamman Educational Trust reported at (2012)
8 SCC 706 paragraphs 9, 10, 11, 12, 13, 15, 16, 17 and 18 to argue
that in absence of any document to support the averments made in
paragraph 6 of the plaint it has to be assumed that the plaint does not
disclose any cause of action against the first defendant.
It is submitted that a suit consists of three parts being (i) the right or
the liability alleged in the suit, (ii) the grievance or injury complained of and
(iii) the reliefs sought. These three elements are judicially recognized by the
Bombay High Court in Pramod Premchand Shah & Ors v. Ratan N.
Tata & Ors, order dated 10.07.2017 Chamber Summons (L) No. 809 of
2017 in Suit No. 192 of 2017 at paragraph 8. The Hon'ble Court would
not require the plaintiffs to prove the facts which, even if they do, would not
entitle the plaintiffs to the relief sought in the suit. In such circumstances,
the plaint ought to be rejected under Order VII Rule 11(a). In exercise of the
power under Order VII Rule 11 CPC the Court must, if on a meaningful and
not formal reading of the plaint, finds it manifestly vexatious and meritless,
in the sense of not disclosing a clear right to sue, and if clever drafting has
created the illusion of a cause of action, nip it in the bud as held by the
Hon'ble Supreme Court in T. Arivandandam V. T.V. Satyapal reported at
(1977) 4 SCC 467 at paragraph 5.
The objections of the petitioner are thus summarized as:
(i) There is no cause of action against defendant no.1 based on breach
of contract or for specific performance of any contract to which
defendant no.1 is a party.
(ii) There is no cause of action based on tortious interference to
procure a breach of contract because no existing contract has been
breached.
(iii) The plaintiffs cannot ask the court to invent a contract and
complain either of its breach or tortious interference to procure a
breach thereof.
Per contra, Mr. S.K. Kapoor, the learned Senior Counsel appearing on
behalf of the plaintiffs submits that the plaint discloses several causes of
action against the defendant No.1. Firstly, the plaintiffs have pleaded that a
pre-incorporation agreement was made by and between the plaintiff No.2
and the defendant No.1 which contract was implemented for several years.
The plaintiffs' alleged breach of that contract by the defendant No.1 and in
consequence of the breaches of the pre-incorporation contract committed by
the defendant No.1, the plaintiffs have suffered losses and damages. Mr.
Kapoor has referred to Paragraphs 6 to 9, 13, 14, 16, 24, 38, 45, 49, 50 and
prayers (a), (m), (n), (q), (s), (u) and (w) of the plaint.
It is submitted that the suit is first and foremost a suit against the
defendant No.1 to enforce a pre-incorporation contract made with him. The
first plaintiff is a company. The second plaintiff is the promoter of the
plaintiff company and the third plaintiff is the wife of the plaintiff No.2 and a
nominee shareholder of the plaintiff No.1. Both the second plaintiff and the
defendant No.1 were promoters of the plaintiff company. The defendant
No.1 was added as a promoter of the company.
The plaintiff company has accepted the pre-incorporation contract and
has sued to enforce it. It is submitted that Sections 15 and 19 of the
Specific Relief Act, 1963 which provide that a party to a pre-incorporation
contract may enforce the contract against the other party thereto and if the
concerned company has accepted the contract then the company also has a
cause of action for enforcement of such pre-incorporation contract. Mr.
Kapoor has referred to Paragraphs 4 and 14 of the plaint and submits that
the said paragraphs read with the sections would show that the ingredients
that are required to sue on pre-incorporation contract have been accurately
stated and are the foundation of this particular cause of action against the
defendant No.1. There is no requirement in law that pre-incorporation
contract actually to be inserted in the Memorandum of the company.
Section 15 of the Specific Relief Act only says that the pre-incorporation
contract should be "warranted by the terms of incorporation". "Warranted"
literally means "anything that gives authority for an action". Mr. Kapoor
submits that in other words the subject or transaction contemplated by the
pre-incorporation contract must be such that it can be justified or permitted
or necessitated by the terms of incorporation.
Mr. Kapoor in this regard has relied upon a decision of the Hon'ble
Supreme Court in Jai Narain Parasrampuria (Dead) and Others v.
Pushpa Devi Saraf and Others, reported at (2006) 7 SCC 756
Paragraphs 20 to 27 to submit that this right has been recognized in the
said decision and, accordingly, it cannot be contended that the terms of the
pre-incorporation contract should have been in the articles otherwise the
plaint should be held to be demurrable on this point. It is submitted that in
Jai Narain (supra) it was held that the expression meant that transaction
should not be ultra vires the purposes for which the company was
incorporated. In the instant case, both the MOA and the AOA of the
company expressly enable the sales and purchases of goods and such
transactions went on for nearly two decades. In fact, the record manifests
that the buying and selling were indeed warranted by the terms of the
incorporation of the company.
Apart from the cause of action against defendant No.1 on the basis of
breaches of the pre-incorporation contract, which per se is more than
sufficient to defeat the application, the plaintiffs have extensively pleaded
other causes of action also against him in respect of economic torts in which
he was a principal wrongdoer. These causes of action against the defendant
No.1 are based on elaborate facts which have been fully narrated in the
plaint.
The wrongful acts according to Mr. Kapoor are:-
(i) Inducing breaches of contracts with third parties;
(ii) Interfering with performance of contracts by third parties;
(iii) Intimidation in collusion with third parties;
(iv) Conspiracy in agreement with third parties and
(v) Interference with trade or business by unlawful means in
concert and conspiracy with third parties.
Mr. Kapoor has relied upon extracts from Bullen & Leake, 12th
Edition, Pages 500-501 and 15th Edition, V-I, Pages 623-624 and Clerk
& Lindsell on Torts, Passages from Chapter-XXIV, Page 1687 et seq.
It is submitted that these passages spell out the ingredients of the
several torts, breaches whereof are averred by the plaintiff against the
defendant and each of them including defendant No.1 who was the arch
ringleader according to the plaintiffs.
It is submitted that defendant No.1 was personally involved and
effectively particips criminis in the commission of all of the torts by which the
rights of the plaintiffs were wrongfully invaded in respect of which the reliefs
of declarations, injunctions and damages have been sought in the suit by
the plaintiffs.
The particulars of causes of action arising from the torts alleged
against defendant No.1 will appear, inter alia, from Paragraphs 38, 45,
particularly sub-paragraphs (ee), (hh), (ii), (kk), (II) and (mm) and other later
paragraphs of the plaint.
Mr. Kapoor submits that all the tortious complaints made against
defendant No.1 are related to and connected with the defendant Nos.39 to
42 also. Paragraph 35 is particularly relevant in this context. It is these
contracts that are integrally connected with the economic torts. The
statements of facts relating to the causes of action against the defendant
Nos.39 to 42 jointly and severally, as also in association with the defendant
Nos.1 to 38, are comprehensively stated in paragraphs 39 to 44 and 45 of
the plaint.
Mr. Kapoor in particular has referred to Paragraphs 45(a) to 45(j)
regarding the defendant No.39, Paragraphs 45(k) to 45(2) regarding the
defendant No.40 and Paragraphs 45(x) to 45(dd) regarding the defendant
Nos.41 and 42.
Mr. Kapoor refers to Paragraphs 45(dd) of the plaint and submits that
a bare reading of the said paragraph and the said sub-paragraphs would
show that there is specific reference to pending and outstanding orders that
remained to be supplied by the defendant Nos.39, 41 and 42. Mr. Kapoor
has referred to further details and particulars of the orders as mentioned in
Schedule B at pages 34 to 36 in G.A. No.117 of 2017.
In order to demonstrate overall involvement of the defendant No.1 and
that the other defendants are acting at the dictates of the said defendants,
Mr. Kapoor has referred to Paragraphs 38 and 45(hh) to show that in the
said paragraphs the plaintiff has categorically stated that the defendant
No.1 has unlawfully induced or procured the breaches of contracts between
the plaintiffs and third parties, namely, defendant No.39 to defendant No.42
and each of them. Similarly, Paragraphs 45(hh) and 45(II) of the plaint
would demonstrate that defendant No.1 has deliberately and directly
interfered with the performance of the contracts between the plaintiffs and
the defendant No.39 to defendant No.42 by unlawful means. The defendant
No.1 was guilty of the tort of intimidation and using coercion by unlawful
means to cause harm to the plaintiffs. The defendant No.1 conspired with
the defendant No.2 to defendant No.42 to do various acts by unlawful means
and caused injuries and damages to the plaintiffs as stated in Paragraph
45(hh)(ii)(kk) and Paragraph 46. Mr. Kapoor has referred to Paragraphs
45(II), 48, 49 and 56 of the plaint and submits that in the said paragraphs
the plaintiff has categorically stated that the defendant No.1 caused
intentional harm without any just excuses by using unlawful means to the
plaintiffs. All these wrongful acts were civil wrongs that defendant No.1
perpetrated in concert and conspiracy with the other defendants and these
economic torts and/or industrial torts as they are now called, give the
plaintiffs rights to the reliefs claimed in this suit.
Mr. Kapoor has invited attention of this Court to an earlier order dated
17th February, 2014 and submits that the said order reflects a prima facie
consideration of the facts and circumstances relating to the various
breaches of contracts by defendant Nos.1 to 42 and each of them as well as
various tortious acts committed by the defendant Nos.1 to 38 acting in
concert and conspiracy with each other to defeat the rights of the plaintiffs.
Mr. Kapoor submits that in a demurrer application, it is well-settled
that in order to ascertain the plaint disclosed the causes of action or not
which is essentially a question of fact must be judged and decided on the
basis of the averments made in the plaint. If the averments made in the
plaint disclose the ingredients of a cause of action then no further enquiry is
called for. For the purpose of determining whether the plaint disclose the
cause of action, it must be assumed that the averments made in the plaint
are true and correct and in determining such an issue, the Court has due
regard for the whole of the plaint and does not enter into any subtraction or
deletion of the averments in the plaint. The plaint has to be read as a
whole. The plaint cannot be rejected in part. In deciding a demurrer of
such a kind, the court is not concerned with any defence that a party may
have on the merits of the case. It is not the lack of proof but the lack of
pleading with which the Court is concerned in deciding an application of
this nature is the submission of Mr. Kapoor. In this regard, Mr. Kapoor has
relied upon the following decisions:-
(a) Ramesh B Desai & Ors. Vs. Bipin Vadilal Mehta & Ors.
reported at 2006 (5) SCC 638, Paragraphs 14 & 15;
(b) Mansukhlal Dhanraj Jain & Ors. Vs. Eknath Vithal Ogale
reported at 1995 (2) SCC 665, Paragraph 5;
(c) Roop Lal Sathi Vs. Nachhattar Singh Gill reported at 1982(3)
SCC 487, Paragraph 20;
(d) Liverpool & London S.P. & I Association Ltd. Vs. M V Sea
Success I & Anr. reported at 2004 (9) SCC 512, Paragraphs
136 & 146;
(e) Kuldeep Singh Pathania Vs. Bikram Singh Jaryal reported at
2017 (5) SCC 345, Paragraphs 11 & 12.
Mr. Kapoor concludes by submitting that the essential and principal
relief is against the defendant No.1 who is at the very epicentre of the
dispute and the grievances of the plaintiffs are essentially against him since
the other defendants are only acting at his behest. The causes of action are
against the defendant No.1 individually in part and jointly with regard to
other comprehensive pleas.
The plaint must conform to Order 7 Rule 1 of the Code of Civil
Procedure. It is essential that a plaint must disclose a cause of action and a
statement to the effect that it is not barred by limitation. The cause of
action is essentially a bundle of facts to be stated in the plaint which if
proved at the trial would result in a decree being passed in favour of the
plaintiff.
In (1988) QBD 128, Lord Esher M.R., defined "cause of action" to
mean "every fact which it would be necessary for the plaintiff to prove, if
traversed, in order to support his right to the judgment of the Court. It does
not comprise every piece of evidence which is necessary to prove each fact,
but every fact which is necessary to be proved."
Fry L. J., agreed and said :-
"Everything which, if not proved, gives the defendant an immediate
right to judgment must be part of the cause of action."
There is a distinction between a plaint not disclosing a cause of action
and the plaintiff has no cause of action to sue. A decision as to whether the
plaint discloses no cause of action the Court is required to read the plaint in
a meaningful manner and take the averments in the plaint to be correct.
The plaintiff may have a cause of action which ultimately may not succeed
that is not the consideration on which the plaint is to be rejected at the
initial stage.
To put it in a concise form, the words "cause of action" means the
whole bundle of material facts which are necessary for the plaintiff to prove,
in order to entitle him to the reliefs claimed in the suit. Order 7 Rule 1
requires the plaintiff to incorporate in the plaint the facts constituting the
cause of action. The plaintiff is required to plead all material facts upon
which his right to relief is based and from which court can arrive at a
conclusion in his favour. Such "cause of action" generally means a situation
or state of facts that entitles a party to maintain an action in court, the
material facts imperative for claimant to allege and prove, constitute cause
of action that helps plaintiff to obtain decree. The phrase 'does not disclose
cause of action' as used in Order 7 Rule 11(a) has to be narrowly construed.
The distinction between non-existence of a cause of action and non-
disclosure of cause of action has been discussed in State of Orissa v.
Kolckna Company Ltd., reported at (1996) 8 SCC 377.
Under Order 7 Rule 11(a), the plaint shall be rejected only if the
averments in the plaint ex facie do not disclose a cause of action or on a
reading thereof the suit appears to be barred under any law. The plea that
there is no cause of action for the suit is not same as to say the plaint does
not disclose any cause of action, which is a ground for the rejection of the
plaint. The correctness or otherwise of the allegations constituting the
cause of action is beyond the purview of Clause (a) of Order 7 Rule 11. (See
British Airways v. Art Works Export Ltd. & Anr. reported at AIR 1986
Cal 120)
This power of rejection of plaint ought to be used only when court is
absolutely sure that plaintiff does not have an arguable case at all.
The objection as to the rejection of plaint is in the nature of demurrer.
In Black's Law dictionary, 10th Edition, Bryan A. Garner, the word
"demurrer" has been described as:-
"Demurrer. [Law French demorer "to wait or stay"] (16c) A
pleading stating that although the facts alleged the facts alleged in a
complaint may be true, they are insufficient for the plaintiff to state a
claim for relief and for the defendant to frame answer. In most
jurisdictions, such a pleading is now termed a motion to dismiss, but
demurrer is still used in a few states, including California, Nebraska,
and Pennsylvania. (See Pleading (quot.). Cf. Denial (3).
"The word 'demurrer,' derived from the Latin demorari, or the
French demorrer, meaning to 'wait or stay', imports that the party
demurring waits or stays in his proceedings in the action until the
judgment of the court is given whether he is bound to answer to so
insufficient a pleading. Each party may demur to what he deems an
insufficient pleading of the other. The demurrer was general when it
was to matter of substance; it was special when it was made to matter
of form, and must specifically point out the defect." Edwin E. Bryant,
The Law of Pleading Under the Codes of Civil Procedure 15 (2d ed.
1899)"
The Hon'ble Supreme Court in Ramesh B. Desai & Ors. (supra) has
considered the nature of a demurrer application. It is stated:-
"14. The plea raised by the contesting respondents is in fact a plea of
demurrer. Demurrer is an act of objecting or taking exception or a protest. It is a pleading by a party to a legal action that assumes the truth of the matter alleged by the opposite party and sets up that it is insufficient in law to sustain his claim or that there is some other defect on the face of the pleadings constituting a legal reason why the opposite party should not be allowed to proceed further. In O.N. Bhatnagar v. Rukibai Narsindas (1982) 2 SCC 244 (SCC para 9) it was held that the appellant having raised a plea in the nature of demurrer, the question of jurisdiction had to be determined with advertence to the allegations contained in the statement of claim made by Respondent 1 under Section 91(1) of the Act and those allegations must be taken to be true. In Roop Lal Sathi v. Nachhattar Singh Gill (1982) 3 SCC 487 (SCC para 24) it was observed that a preliminary objection that the election petition is not in conformity with Section 83(1)(a) of the Act i.e. it does not contain the concise statement of the material facts on which the petitioner relies, is but a plea in the nature of demurrer and in deciding the question of the Court has to assume for this purpose that the averments contained in the election petition are true. Reiterating the same principle in Abdulla Bin Ali v. Galappa (1985)2 SCC 54 it was said that there is no denying the fact that the allegations made in the plaint decide the forum and the jurisdiction does not depend upon the defence taken by the defendants in the written statement. In Exphar SA v. Eupharma Laboratories Ltd. (2004) 3 SCC 688 (SCC para 9) it was ruled that where an objection to the jurisdiction is raised by way of demurrer and not at the trial, the objection must proceed on the basis that the facts as pleaded by the initiator of the impugned proceedings are true. The submission in order to succeed must show that granted those facts the court does not have jurisdiction as a matter of law. In this case the decision of the High Court on the point of the jurisdiction was set aside as the High Court had examined the written statement filed by the respondents in which it was claimed that the goods were not at all sold within the territorial jurisdiction of the Delhi High Court and also that Respondent No.2 did not carry out business within the jurisdiction of the said High Court. Following the same principle in Indian Mineral & Chemicals Co. v. Deutsche Bank (2004) 12 SCC 376 (SCC paras 10 and 11), it was observed that the assertions in a plaint must be assumed to be true for the purpose of determining whether leave is liable to be revoked on the point of demurrer."
"15. The principle underlying clause (d) of Order 7 Rule 11 is no different. We will refer here to a recent decision of this Court rendered in Popat and Kotecha Property v. State Bank of India Staff Assn. (2005) 7 SCC 510 where it was held as under in para 10 of the report:
(SCC p.515) "10. Clause (d) of Order 7 Rule 7 speaks of suit, as appears from the statement in the plaint to be barred by any law. Disputed questions cannot be decided at the time of considering an application filed under Order 7 Rule 11 CPC. Clause (d) of Rule 11 of Order 7 applies in those cases only where the statement made by the plaintiff in the plaint, without any doubt or dispute shows that the suit is barred by any law in force."
"16. It was emphasized in para 25 of the report that the statement in the plaint without addition or subtraction must show that it is barred by any law to attract application of Order 7 Rule 11 CPC. The principle is, therefore, well settled that in order to examine whether the plaint is barred by any law, as contemplated by clause (d) of Order 7 Rule 11 CPC, the averments made in the plaint alone have to be seen and they have to be assumed to be correct. It is not permissible to look into the pleas raised in the written statement or to any piece of evidence. Applying the said principle, the plea raised by the contesting respondents that the company petition was barred by limitation has to be examined by looking into the averments made in the company petition alone and any affidavit filed in reply to the company petition or the contents of the affidavit filed in support of Company application No.113 of 1995 filed by the respondents seeking dismissal of the company petition cannot at all be looked into."
The circumstances under which a plaint can be rejected in addition to the cases mentioned in Order 7 Rule 11 are vexatious and an abuse of process.
The same has been considered by the Hon'ble Supreme Court in Mayar (H.K.) LTD. & Others reported in 2006 (3) SCC 100 in the manner following:
"11. Under Order 7 Rule 11 of the Code, the Court has jurisdiction to reject the plaint where it does not disclose a cause of action, where the relief claimed is undervalued and the valuation is not corrected within the time as fixed by the Court, where insufficient court fee is paid and the additional court fee is not supplied within the period given by the Court, and where the suit appears from the statement in the plaint to be barred by any law. Rejection of the plaint in exercise of the powers under Order 7 Rule 11 of the Code would be on consideration of the principles laid down by this Court. In T. Arivandandam v. T.V. Satyapal reported in (1977) 4 SCC 467 this Court has held that if on a meaningful, not formal reading of the plaint it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, the Court should exercise its power under Order 7 Rule 11 of the Code taking care to see that the ground mentioned therein is fulfilled. In Roop Lal Sathi v. Nachhattar Singh Gill reported in (1982) 3 SCC 487 this Court has held that where the plaint discloses no cause of action, it is obligatory upon the Court to reject the plaint as a whole under Order 7 Rule 11 of the Code, but the rules does not justify the rejection of any particular portion of a plaint. Therefore, the High Court therein could not act under Order 7 Rule 11(a) of the Code for striking down certain paragraphs nor the High Court could act under Order 6 Rule 16 to strike out the paragraphs in the absence of anything to show that the averments in those paragraphs are either unnecessary, frivolous or vexatious, or that they are such as may tend to prejudice, embarrass or delay the fair trial of the case, or constitute an abuse of the process of the Court. In ITC Ltd. v. Debts Recovery Appellate Tribunal reported in (1998) 2 SCC 70 it was held that the basic question to be decided while dealing with an application filed by the defendant under Order 7 Rule 11 of the Code is to find out whether the real cause of action has been set out in the plaint or something illusory has been projected in the plaint with a view to get out of the said provision. In Saleem Bhai v.
State of Maharashtra reported in (2003) 1 SCC 557 this Court has held that the trial court can exercise its powers under Order 7 Rule 11 of the Code at any stage of the suit before registering the plaint or after issuing summons to the defendant at any time before the conclusion of the trial and for the said purpose the averments in the plaint are germane and the pleas taken by the defendant in the written statement would be wholly irrelevant at that stage. In Popat and Kotecha Property v. State Bank of India Staff Assn. Reported in (2005) 7 SCC 510 this Court has culled the legal ambit of Rule 11 of Order 7 of the Code in these words: (SCC p.516, para 19) "19. There cannot be any compartmentalisation, dissection, segregation and inversions of the language of various paragraphs in the plaint. If such a course is adopted it would run counter to the cardinal canon of interpretation according to which a pleading has to be read as a whole to ascertain its true import. It is not permissible to cull out a sentence or a passage and to read it out of the context in isolation. Although it is the substance and not merely the form that has to be looked into, the pleading has to be construed as it stands without addition or subtraction of words or change of its apparent grammatical sense. The intention of the party concerned is to be gathered primarily from the tenor and terms of his pleadings taken as a whole. At the same time it should be borne in mind that no pedantic approach should be adopted to defeat justice on hair-splitting technicalities."
"12. From the aforesaid, it is apparent that the plaint cannot be rejected on the basis of the allegations made by the defendant in his written statement or in an application for rejection of the plaint. The Court has to read the entire plaint as a whole to find out whether it discloses a cause of action and if it does, then the plaint cannot be rejected by the Court exercising the powers under Order 7 Rule 11 of the Code. Essentially, whether the plaint discloses a cause of action, is a question of fact which has to be gathered on the basis of the averments made in the plaint in its entirety taking those averments to be correct. A cause of action is a bundle of facts which are required to be proved for obtaining relief and for the said purpose, the material facts are required to be stated but not the evidence except in certain cases where the pleadings relied on are in regard to misrepresentation, fraud, wilful default, undue influence or of the same nature. So long as the plaint discloses some cause of action which requires determination by the Court, the mere fact that in the opinion of the Judge the plaintiff may not succeed cannot be a ground for rejection of the plaint."
Incidentally, the said decision has also considered the celebrated decision of the Hon'ble Supreme Court in T. Arivandandam v. T.V. Satyapal reported in (1977) 4 SCC 467 which was followed in a number of subsequent decisions where the Hon'ble Supreme Court called upon all Courts to "nip it in the bud" vexatious and meritless litigations.
The said decision was also referred to and relied upon in N.V.Srinivasa Murthy & Anrs. Vs. Mariyamma (dead) by proposed Lrs. & Ors. reported at 2005 (5) SCC 548, Paragraphs 16 and 17 which states:-
"16. The High Court does not seem to be right in rejecting the plaint on the ground that it does not disclose any "cause of action". In our view, the trial court was right in coming to the conclusion that accepting all averments in the plaint, the suit seems to be barred by limitation. On critical examination of the plaint as discussed by us above, the suit seems to be clearly barred on the facts stated in the plaint itself. The suit as framed is prima facie barred by the law of limitation, provisions of the Specific Relief Act as also under Order 2 Rule 2 of the Code of Civil Procedure."
"17. This is a fit case not only for rejecting the plaint but imposing exemplary costs on the appellant on the observations of this Court in the case of T.Arivandandam v. T.V. Satyapal reported in (1977) 4 SCC 467: (SCC p.468) "The trial court must remember that if on a meaningful - not formal - reading of the plaint it is manifestly vexatious and meritless in the sense of not disclosing a clear right to sue, it should exercise its power under Order 7 Rule 11 CPC taking care to see that the ground mentioned therein is fulfilled. If clever drafting has created the illusion of a cause of action, the court must nip it in the bud at the first hearing by examining the party searchingly under Order 10 CPC. An activist judge is the answer to irresponsible law suits. The trial courts would insist imperatively on examining the party at the first hearing so that bogus litigation can be shot down at the earliest stage. The Penal Code is also resourceful enough to meet such men (Chapter 11) and must be triggered against them."
In Liverpool & London (supra) Paragraphs 132 and 133 it was stated:
"It is trite that a party should not be unnecessarily harassed in a suit. An order refusing to reject a plaint will finally determine his right in terms of Order 7 Rule 11 CPC. The idea underlying Order 7 Rule 11(a) is that when no cause of action is disclosed, the courts will not unnecessarily protract the hearing of a suit. Having regard to the changes in the legislative policy as adumbrated by the amendments carried out in the Code of Civil Procedure, the courts would interpret the provisions in such a manner so as to save expenses, achieve expedition and avoid the court's resources being used up on cases which will serve no useful purpose. A litigation which in the opinion of the court is doomed to fail would not further be allowed to be used as a device to harass a litigant."
The said view is reiterated in Kuldeep Singh (supra) where it has been clearly stated that whether a plaint discloses a cause of action is a question of fact and it has to be gathered on the basis of the plain averments taking them to be true.
In Bijoy Nagar Tea Company Ltd. Vs. Narsing Dasgupta & Ors. reported at 2008 (1) CHN 98(Cal), a Co-ordinate Bench of this Court has expressed similar views. It is stated:-
"38. While considering an application for rejection of plaint under Order VII Rule 11 of the Code of Civil Procedure, the Court is required to confine itself within the plaint. Not a casual approach or a formal reading, but a meaningful reading of the plaint is the demand of the statute.
39. The Court cannot be necessarily burdened with luxury litigation. It has statutory obligation to search, screen and then, eliminate vexatious or mala fide, litigation. It cannot be afford to remain a passive onlooker while coming across a case which is filed in order to harass the opponent and in the process to derive undue advantage - without having any 'cause of action' in the true sense.
40. Borrowing expression from Lord Denning, it can be said that the Court must act as 'bold spirit' and not as 'timorous soul'."
For rejection of plaint under Order 7 Rule 11 only contents of the plaint have to be seen and read as a whole and nothing else. As long as the plaint discloses cause of action, mere fact that plaintiff may not succeed in suit cannot be ground for rejection of plaint. The decisions cited by the applicant with regard to the non-production of the agreement in support of Paragraph 6 of the Plaint, is a matter of proof and evidence which has to be assessed at the trial of the suit. A plaint cannot be defeated due to lack of proof at this stage since in deciding an application in the nature of demurrer, the Court is not supposed to assess as to whether the plaintiff would be ultimately able to prove its case. There is a distinction between lack of pleading and lack of proof. A plaint must fail if there is a lack of pleading leading to non-disclosure of a cause of action.
It is elementary that for every wrong there has to be a remedy. There are three essential features and/or elements which give rise to a cause of action. The plaintiff must aver that he has a right of which there is a breach and the law provides for a remedy. In Tata Sons Ltd. & Ors. In the matter between Pramod Premchand Shah & Ors. Vs. Ratan N. Tata & Ors., Chamber Summons (L) No.809 of 2017 in Suit No.192 of 2017 it is stated that every suit has three components, namely, the first is the right or liability, breach or accrual of which is complained of in the suit; the second is the injury or grievance resulting from any actual breach or accrual on the part of the opponent; and the third is the relief that is claimed in the suit. A reading of the plaint shows that the defendant No.1 is at the heart of the plaint. The defendant No.1 is projected as the main mischief maker. The AM Group of Companies is merely having a hallowed presence surrounding the defendant No.1. The defendant No.1 owes its existence to a pre-incorporation agreement which according to the plaintiff has even continued even after the incorporation of the defendant No.1 and the shareholders agreement.
The plaintiffs have set out three different causes of action against the defendant No.1.
The first cause of action appears to be that there is a pre- incorporation agreement between the plaintiffs and the defendant No.1 which is sought to be breached by the defendant No.1. This cause of action apparently permeates through the entire body of the plaint in so far as the assertion that the defendant No.1 all throughout represented and assured that all supplies should be routed through the plaintiff No.1.
The second cause of action is that the defendant Nos.2 to 38 being the alter ego of the defendant No.1 or under its absolute control is acting in derogation of the existing terms and conditions of the agreement at the instance and behest of the defendant No.1. In short, the allegation is that the defendant No.1 is procuring a breach of contract between the plaintiffs and the said defendants. The third cause of action is procuring a breach of contract with the third parties, namely, defendant Nos.39 to 42. In short the cause of action against the defendant No.1 is personal on tortious interference to procure a breach of contract.
The learned Senior Counsel for both sides have relied upon extracts from Bullen & Leake & Jacob's Precedents of Pleadings, Fourteenth Edition, Vol.2 (2001) paragraphs 51-01 and 51-05 at pages 833 and 834 Paragraphs 51-3 and 51-05 and Clerk & Lindsell on Torts, Passages from Chapter-XXIV, Page 1687.
The torts of procuring a breach of contract, intimidation, unlawful interference and conspiracy are now generally described as "economic torts". Lord Neuberger in Revenue & Customs Commissioners v. Total Network SL reported at 2008 (1) A.C. 1174 has observed:-
"Unlawful means conspiracy is one of the so-called economic torts, which included procuring a breach of contract, unlawful interference, causing loss by unlawful means, intimidation and conspiracy to injure (or lawful means conspiracy). These torts present problems even if they are considered individually (and yet more problems if they are treated as a genus)."
The development of this branch of law evolved during the nineteenth century. During that period, the courts relinquished only slowly the precept that a person commits a wrong if he deliberately or maliciously "hinders another in his trade or business". (Keeble v. Hickeringill, (1707) 11 East 574n. at 575) By the turn of the century, however, the House of Lords confirmed the adaptation of the common law to the principles of a competitive market when, in Allen v. Flood, it recognized that a judicial "chasm" lay between injury done to another by lawful means, albeit intentionally caused, and injury caused by the "violation of a legal right". (1898) A.C. 1 at 121). Half a century before Allen v. Flood, (1898) A.C. 1 at 96, the seminal decision in Lumley v. Gye, (1853) 2 E&B 216 arising from a procurement of breach of contract for services, established a general liability for intentionally inducing the breach of a contract between the claimant and a third party. The two grounds of liability recognized by the law were knowingly inducing a person "to commit an actionable wrong" and doing an act "not wrongful in so far as he is concerned" but harming a third party "by use of illegal means directed against that third party". (per Lord Watson in Allen v. Flood, (1898) A.C. 1 at 96) In this decision, atypical of its time, upholding the right of a trade union official to persuade workers not to work when he procured no breach of their contracts, the line was drawn between persuading a person not to make a contract and persuading a person to break an existing contract, the former being lawful, the latter unlawful. So, it later became the "leading heresy" to aver that malicious interference with another's trade is per se actionable even when no unlawful means are employed or threatened. (Lord Dunedin in Sorrell v. Smith, (1925) A.C. 700 at 719) Thus, the common law has refused to embrace a tort of "unfair competition", even where one person intends harm to his rival's economic interests. (Warnink (Erven) BV v. Townend & Sons (Hull) Ltd. (1979) A.C. 731, HL). That a breach of contract is unlawful in the sense that it involves the violation of a legal right there can be no doubt (ibid. at 1201 per Lord Hodson); and to draw the line . . . between contract and tort seems to be inconsistent with the principle that underlies Lumley v Gye (ibid. at 1234 per Lord Pearce). Lord Devlin could find "nothing to differentiate a threat of a breach of contract from a threat of physical violence or any other illegal threat" [1964] A.C. 1129 at 1209. The two causes of action (for breach of contract - actual or anticipatory - and for intimidation) are "in law quite independent"; so that "in no circumstances does C sue on B's contract. The cause of action arises not because B's contract is broken but because it is not broken; it arises because of the action which B has taken to avert the breach." (ibid. at 1207 and 1208). But there have been judicial warnings that "new forms of tort may develop", or that "the ambit and ingredients of torts of conspiracy and unlawful interference may hereafter require further analysis and reconsideration by the courts". (per Lord Templeman in Lonrho Plc v. Fayed (1992) 1 A.C. 448 at 471) Such analysis and reconsideration occurred in the House of Lords decisions in OBG Ltd. v. Allan and Revenue & Customs Commissioners v. Total Network SL which redefined some of the elements of and boundaries between the economic torts in the twenty-first century. (OBG Ltd. v. Allan 2008 (1) AC 1174) Neither decision pointed towards the economic torts developing new means for regulating economic competition. (See Clerk & Lindsell on Torts, 21st Edition) There has been for some years a degree of confusion as to the proper identification of the economic torts of inducing breach of contract and unlawful interference causing loss; they have frequently been classed and discussed together, through the use of such concepts as "direct" or "indirect" interference. This confusion has been swept aside by the House of Lords case of OBG Ltd v. Allan (2008) 1 A.A. 1 in which the House of Lords comprehensively reviewed these torts, concluding that they were separate causes of action, with separate and distinct requirements: "...it is time for the unnatural union between the Lumley v. Gye tort and the tort of causing loss by unlawful means to be dissolved".
The case establishing liability for inducing breach of contract was Lumley v Gye (1853) 2 E&B 216, in which the person procuring a breach of contract was held liable as accessory to the liability of the contracting party. The essential elements of this tort are accordingly as follows:-
(1) Knowledge by the defendant that he is inducing a breach of contract.
(2) Intention to procure a breach of contract.
(3) Breach of contract.
(4) Damage.
Mr. Chidambaram has emphatically submitted that unless the plaintiff is able to establish that there is existence of a contract between the plaintiff and the defendant No.1, there cannot be procuring of breach of a non-existent contract. The learned Senior Counsel has referred to a decision of the Court of Appeal in Middlebrook Mushrooms Ltd. v. T.G.W.U. reported at (1993) I.C.R. 612 and submitted that knowingly to procure or, as it is often put, to induce a third party to break his contract to the damage of the other contracting party without reasonable justification or excuse is a tort.
The essential ingredients are the knowledge and intention. An act of inducement is not by itself actionable. (See per Lord Devlin in Rookes v Barnard, (1964) AC 1129 at 1212) The procurer must act with the requisite knowledge of the existence of the contract and intention to interfere with its performance: a "two-fold requirement". (per Lord Diplock in Merkur Island Shipping Corp v Laughton [1983] 2 A.C. 570 at 608] The plaintiff must show that there was intentional invasion of its contractual rights and not merely that the breach of contract was the natural consequence of the defendant's conduct; he must show that the breach of contract was an end in itself or the means to an end. (OBG Ltd. v Allan). The defendant must be shown to have knowledge of the existence of a contract; but "in many cases a third party may be deemed to know of the almost certain existence of a contract and indeed of some of its likely terms"
(per Neill L.J. in Middlebrook Mushrooms Ltd. TGWU). The defendant need not know of the precise terms to be liable, for given that he knew of the existence of the contract, the test of his intention is objective. (Greig v Insole [1978] 1 W.L.R. 302 at 337-338). It is, however, no answer for a defendant to say that he was attempting to induce the contracting party to "suspend" the contract when that party had no right to do so and the inducement in fact brought about a breach. (Daily Mirror Newspapers Ltd v Gardner [1968] 2 Q.B. 762). Where the contract is determinable, the defendant incurs no liability merely by inducing the contracting party to determine the contract lawfully, for there is then no breach. (Per Slesser L.J. in McManus v Bowes [1938] 1 K.B. 98 at 127) The extension of the Lumley v Gye tort suggest by Lord Denning M.R. in Torquay Hotel Co Ltd v Cousins [1969] 2 Ch.106 at 137-138 and seemingly endorsed by the House of Lords in Merkur Island Shipping Corp v Laughton to include "interference" with the performance of a contract which does not cause any breach, was rejected by the House of Lords in OBG Ltd v Allan where the leading speeches of both Lord Hoffmann and Lord Nicholls expressly confined the Lumley v Gye tort to inducing breach of contract. Any liability for interference with the performance of a contract short of causing its breach can only arise under the unlawful interference tort. In OBG Ltd v. Allan the House of Lords confirmed that this tort "the defendant must have intended to inflict the harm of which the complaint is made". Because damage to economic expectations is sufficient to found a claim, there need not have been any intention to cause a breach of contract or interfere with contractual rights. (ibid. per Lord Hoffmann at 8).
Similarly inducing a breach of contract by a third party with the intention of damaging the claimant can also amount to this tort. (Hadmor Productions Ltd v Hamilton [1983] 1 A.C. 191 at 228-229). But while the "purpose or intention of inflicting injury on the [claimant]" is an essential element of the tort, it is not necessary to prove that this was the defendant's predominant purpose; it is sufficient that the unlawful act was "in some sense directed against ... or intended to harm the [claimant]". (Lonrho v Fayed [1990] 2 Q.B. 479 at 488-489 per Dillon L.J.). One of the issues addressed by the House of Lords in OBG Ltd v Allan was the scope of unlawful means for the purposes of this tort. Lord Walker expressed the view that:
"the control mechanism must be found ... in the nature of the disruption caused as between the third party and the claimant, by the defendant's wrong (and not the closeness of the connection between the defendant's wrong and the claimant's loss)." (ibid. at 269) The indeterminate ambit of "unlawful means" thus remains one of the principal causes of uncertainty as to the potential scope of liability under this tort. The issue has been the subject of some judicial deliberation in other common law jurisdictions. In Scotland, in McLeod v Rooney, Lord Glennie concluded from an extensive review of the speeches in OBG Ltd v Allan that "the essential aspect [of the tort] is that the loss is caused to the claimant through a third party on whom the defender has unlawfully acted.
That is the control mechanism. The inquiry focuses on the nature of the disruption caused as between the third party and the claimant rather than on the directness of the causative link between the defender's wrong and the claimant's loss." ([2009] CSOH 158; 2010 S.L.T. 499 at 18) A party must be shown to have known that they were inducing a breach of contract. It is not enough that a defendant knows that he is procuring an act which, as a matter of law or construction of the contract, is a breach, nor that he ought reasonably to have known that it is a breach.
(See OBG v Allan per Lord Hoffman at Paragraph 39; British Industrial Plastics Ltd. v. Ferguson (1940) 1 All E.R. 479).
In East England Schools CIC (t/a 4MySchools) v Palmer (2013) EWHC 4138 (QB); (2014) I.R.L.R. 191, it was held that the second defendant knew that it was likely that the first defendant was subject to some form of restrictive covenant, but had failed to take reasonable steps to make himself aware of the precise nature of those restrictions. Further, the second defendant knew that his instructions could well require the first defendant to act in breach (and in fact they did). As such, the second defendant was liable for procuring the first defendant's breach. (See Clerk & Lindsell on Torts, 21st Edition) In Quinn v. Leathem Lord Macnaghten (1901) A.C. 495 at 510) it is said that "a violation of a legal right committed knowingly is a cause of action, and... It is a violation of legal right to interfere with contractual relations recognized by law if there be no sufficient justification for the interference."
Interference with the performance of a contract is an actionable wrong unless there be justification for interfering with the legal right. This tort is committed when A either persuades B to break his contract with C or by showing some unlawful acts he indirectly prevents B to perform contract. The origin of this tort is traced to Lumley v. Gye as mentioned earlier.
The principles that emerged from the discussions made above are that interference with the subsisting contract may arise in three different ways. It is not restricted simply to procuring a breach of contract but covers interference with the performance of the contract as well, that is to say, preventing or hindering one party from performing his contract even though it may not be a breach of the contract. Direct intervention by the persuasion whether by himself or his agents by words or other acts of communication if are intended to influence to break the contract with C would constitute a cause of action.
The second category consists of cases where the intervener does some unlawful acts on the person or property of B which disables him in performing his contract with C. The third category covers cases where intervener persuades the third party to do some unlawful acts which interferes in B's due performance of his contract with C as was intended.
In Greig v. Insole, (1978) 3 All ER 449, five conditions have laid down that are required to be fulfilled by the plaintiff in a suit for interference with a subsisting contract. First, there must be either (a) 'direct' interference with performance of the contract or (b) indirect interference with performance coupled with the use of unlawful means. Secondly, the defendant must be shown to have knowledge of the relevant contract; but it is not necessary that he should have known its precise terms. (Emerald Construction Co. Ltd. v. Lawthien, (1966) 1 WLR 691). Thirdly, he must be shown to have had the intent to interfere with it. Fourthly, the plaintiff must show that he has suffered special damage, that is, more than nominal damage. Fifthly, so far as is necessary, the plaintiff must successfully rebut any defence based on justification which the defendant may put forward.
At this stage, however, the Court is only required to find out if the necessary ingredients of such "economic tort" constituting the cause of action are present in the plaint and not to assess the evidentiary value of such averments.
In 51-03 and 51-04 of Bullen & Leake & Jacob's Precedents of Pleadings, 14th Edition, the learned Authors have stated:-
Knowledge of contract "51-03 The claimant must prove that there was an intentional invasion of his contractual rights and not merely that the breach of contract was the natural consequence of the defendant's conduct. Thus there is a "two-fold" requirements: that the procurer acted with the requisite knowledge of the contract and with the intention to interfere with its performance (per Lord Diplock in Merkur Island Shipping Corpn. V. Laughton (1983) 2 A.C. 570 at 608; per Neill L.J. in Middlebrook Mushrooms Ltd. v. T.G.W.U. (1993) I.C.R. 612 at 621) Knowledge of the existence of the contract is an essential element but it is no longer the case that the claimant must show detailed knowledge on the part of the defendant: "in many cases a third party may be deemed to know of the almost certain existence of a contract and indeed of some of its likely terms"
(Middlebrook Mushrooms Ltd v. T.G.W.U., above, per Neill L.J. at 621 and Hoffman L.J. at 622).
Breach of contract 51-05 A breach of an existing contract is a fundamental requirement for the tort of inducement (Allen v. Flood (1898) A.C. 1; Hadmor Productions Ltd v. Hamilton (1983) 1 A.C. 191). There is no "tort of wrongfully inducing a person not to enter into a contract" (per Megarry J. in Midland Cold Storage Ltd v. Steer (1972) Ch. 630 at 645). Interference that falls short of occasioning an actual breach may, however, be covered by the relatively new and emerging tort of interference with business or trade, as to which see further below."
In Bullen & Leake & Jacob's Precedents of Pleadings, 18th Edition, the Authors have discussed the necessary ingredients of economic torts in some detail. It is stated, amongst others, that a breach of an existing contract is a fundamental requirement of this tort. Accordingly authorities which appear to expand the tort of inducing breach to include a liability for preventing or hindering performance (e.g. Torquay Hotel v Cousins [1969] 2 Ch. 106), or for violating rights other than those arising pursuant to contract (e.g. Law Debenture Trust Corp v Ural Caspian Oil Corp [1995] Ch. 152 (inducing a breach of a director's fiduciary duty) are now better seen as cases of causing loss by unlawful means. More recent authorities have expressly confirmed that the tort is limited to inducement of a breach of contractual obligations. To prevent the performance of a contractual obligation is not the same thing in law as inducing its breach. The former may give rise to the tort of causing loss by unlawful means; the latter requires the defendant's conduct to have operated on the will of the contracting party: OBG per Lord Nicholls at paras 174-180 and discussion Mertez Investment NV v ACP Ltd [2008] Ch 244 at paragraphs 129-140,,
177. Following the OBG case referred to above, the essential elements of this tort have been identified as follows:
(1) Use by the defendant of unlawful means, thereby (2) Interfering with the actions of a third party in relation to the claimant.
(3) Intention to cause loss to the claimant.
(4) Damage.
Per Lord Hoffman in the OBG case at paragraphs 45-47.
In Aasia Industrial Technologies Vs. Ambience Space Sellers Ltd. And Ors. reported at (1997) 99 BOM LR 613 it is stated:-
"15. A reference may also be made to the observation of Lord Denning MR in Torquay Hotel Co. Ltd. v. Cowsins (1969) All ER 522. That was a case in which the contract the performance of which was interfered with was one for the delivery of fuel. It contained a force majeure clause excusing the seller from liability for non-delivery if delayed, hindered or prevented by inter alia, labour disputes. Lord Denning MR stated the principle thus :-
First there must be interference in the execution of a contract. The interference is not confined to the procurement of a breach of contract. It extends to a case where a third person prevents or hinders one party from performing his contract even though it may not be a breach. Second, the interference must be deliberate. The person must know of the contract or, at any rate, turn a blind eye to it and intend to interfere with it.... Third, the interference must be direct. Indirect interference will not do.
16. Thus it is to be seen that the tort of inducing breach of contract, as now developed in England is that if the act of third party, either by persuasion, inducement or procurement results in breach of a contract, the third party would have committed an actionable interference with the contract. Again so far from persuading or inducing or procuring one of the parties to the contract to break it, the third party may commit an actionable interference with the contract, against the will of both and without the knowledge of either if with knowledge of the contract, he does an act which if done by one of the parties to it, would have been a breach. Of this type of interference the case of G.W.K. Ltd. (supra) affords a striking example. If, instead of persuading B of unlawful action against him, A brings about the break of the contract between B and C by operating through a third party. A may still be liable to C, provided unlawful means arc used. The act of the third party may be against the will of both and without the knowledge of either. It must however be with the knowledge of the contract. But the plaintiff is not obliged to prove that the defendant knew the precise terms of the contract breached; it is enough if the defendant's knowledge is sufficient to entitle the Court to say that he has knowingly or recklessly procured a breach. Proof of malice in the sense of spite or ill-will is unnecessary. It is no justification for the defendant to say that he had an honest doubt whether he was interfering with the plaintiff's contract, or that he acted without malice or in good faith. It is enough to show that the defendant did an act which must damage the plaintiff; it need not be proved that he intended to do so. It is certain that justification is capable of being a defence to this tort, but what constitutes justification is incapable of exact definition. It has been said that regard must be had to the nature of the contract broken, the position of the parties to the contract, the grounds for the breach, the means employed to procure it, the relation of the person procuring it to the person who breaks the contract, and the object of the person procuring the breach."
In Midland Cold Storage Ltd. v. Steer & Ors. reported at [1972] 1 Ch.630 It is stated:-
"Lord Esher M.R., at p. 723, stigmatised the distinction between inducing a breach of contract and inducing a person not to enter into a contract as being "rather a fine distinction"; and he refused to accept it. Lopes L.J. took a similar view, but A.L. Smith L.J. reserved the point. This case, of course, supported Mr. Campbell. What he relied upon in J.T. Stratford & Son Ltd. v. Lindley [1965] A.C. 269 was principally the form of order framed by Lord Upjohn and adopted by House of Lords. This related not merely to existing contracts but also to any contracts thereafter to be made: see [1965] A.C. 269, 339. This was the form of order made in Torquay Hotel Co. Ltd. v. Cousins [1969] 2 Ch. 106, 121, and there are passages in the judgment of Lord Denning M.R. in the Court of Appeal which refer to future contracts: see, for example, pp. 140, 141.
I can dispose of this last point quite shortly. An injunction restraining a person from causing or procuring any breach of contract is not altered in quality by being framed to apply not merely to contracts already made but also to any contracts which may be made subsequently. In each case, the act enjoined is an interference with a contract; the only difference lies in the date on which the contract is made. This is completely different from an order not to prevent a contract from being made. A breach of the obligations created by a contract is one thing, the prevention of any such legal obligations from being brought into being is quite another. Accordingly, I do not think that Mr. Campbell derives any real support on this score from J.T. Startford & Son Ltd. v. Lindley [1965] A.C. 269 or Torquay Hotel Co. Ltd. v. Cousins [1969] 2 Ch. 106. However, that still leaves him with Temperton v. Russel [1893] 1 Q.B. 715. He accepted that it had not remained unaffected by later authorities. Despite what was said about it in Allen v. Flood [1898] A.C. 1, he said that Quinn v. Leathem [1901] A.C. 495 had restored the actual decision on the case, though not the dicta and reasoning of Lord Esher M.R. As Lord Lindley said in Quinn v. Leathem [1901] A.C. 495, 535, the decision could be rested on conspiracy and unjustifiable interference with one of those who had contracts with the plaintiff, and not on the wrongful motive or intention of the defendants; and see the words of Lord Macnaghten at pp. 508,
509. In Allen v. Flood [1898] A.C. 1, 121, Lord Herschell in emphatic terms rejected Lord Esher's concept of there being only a rather fine distinction between inducing a breach of contract and inducing a person not to enter into a contract: for Lord Herschell thee was a chasm between the two.
It seems to me that the actual result in Temperton v. Russell [1893] 1 Q.B. 715 is supportable on the basis of conspiracy, although of course in relation to trade disputes or (no2) industrial disputes this must be read subject to section 1 of the Trade Disputes Act, 1906 and section 132(1) of the Industrial Relations Act, 1971 respectively, making not actionable in tort an agreement or combination to do an act which would not be actionable in tort if done without such an agreement or combination. As the authorities stand, I am certainly not prepared to hold on motion that, conspiracy or unlawful means apart, there is a tort of wrongfully inducing a person not to enter into a contract. Unless hedged about with many restrictions, such a tort would have an extremely wide ambit that would be likely to work as much injustice as justice."
Mr. Chidambaram submits that the allegation of fraud, conspiracy and unlawful means against the defendant No.1 are not in accordance with Order 6 Rule 4 of the Code of Civil Procedure. There cannot be any doubt that Order 6 Rule 4 requires that complete particulars of fraud shall be stated in the pleadings. The particulars of alleged fraud which are required to be stated in the Plaint will depend upon the facts of each particular case and no abstract principle can be laid down in this regard. (See Ramesh B Desai & Ors. Vs. Bipin Vadilal Mehta & Ors. reported at 2006 (5) SCC 638, Paragraphs 14 and 15).
In Bullen and Leake and Jacob's "Precedents of Pleadings" 1975 Edn. at p. 112 it is stated:-
"The function of particulars is to carry into operation the overriding principle that the litigation between the parties, and particularly the trial, should be conducted fairly, openly and without surprises and incidentally to save costs. The object of particulars is to 'open up' the case of the opposite party and to compel him to reveal as much as possible what is going to be proved at the trial, whereas, as Cotton L.J. has said, 'the old system of pleading at common law was to conceal as much as possible what was going to be proved at the trial'."
The distinction between 'material facts' and 'particulars' which together constitute the facts to be proved or the facta probanda on the one hand and the evidence by which those facts are to be proved facta probantia on the other must be kept clearly distinguished. In Philipps v. Philipps (1878) 4 QBD 127,133), Brett, L.J. said:
"I will not say that it is easy to express in words what are the facts which must be stated and what matters need not be stated. ... The distinction is taken in the very rule itself, between the facts on which the party relies and the evidence to prove those facts. Erie C.J. expressed it in this way. He said that there were facts that might be called the allegata probanda, the facts which ought to be proved, and they were different from the evidence which was adduced to prove those facts. And it was upon the expression of opinion of Erie C.J. that Rule 4 [now Rule 7(1)] was drawn. The facts which ought to be stated are the material facts on which the party pleading relies."
In the words of Lord Atkinson in Satish Chandra Chatter, since Deceases Now Represented by Bon Behari Chatterji and Ors. Vs. Kumar Satish Satish Kantha Roy and ors. reported at 28 CWN 327:-
"Charges of fraud and collusion like those contained in the plaint in this case must, no doubt, be proved by those who make them proved by established facts or inferences legitimately drawn from those facts taken together as a whole. Suspicions and surmises and conjuncture are not permissible substitutes for those facts or those inferences but that by no means requires that every puzzling artifice or contrivance restored to by one accused of fraud must necessarily be completely unravelled and cleared up and made plain before a verdict can be properly found against him. If these were not so, many a clever and dexterous knave would escape."
The plaintiff has given sufficient particulars of fraud, conspiracy and unlawful means whether ultimately the plaintiff would be able to prove such acts at the trial are wholly immaterial.
The plaintiff in paragraph 45 of the Plaint has alleged that in utter breach and gross violation of concluded agreements, the defendant Nos.1 to 38 on the one hand including all the AM Companies and defendant Nos.39 to 42 on the other, clandestinely on and from the month of April, 2016 began to have various completely illicit negotiations, dealings, and transactions so as to circumvent and abrogate the subsisting contractual rights and entitlements of the plaintiff company. Particulars of such wrong doings are mentioned in the sub-paragraphs. There is a categorical assertion in Paragraph 45(hh) that on and from the month of April, 2016, all the AM companies around the world including the defendant Nos.2 to 38 under the directions instructions of the first defendant have decided flagrantly disregard the existing exclusive purchase and procurement agreements which are still subsisting. The defendant Nos.1 to 38 alleged to have negotiated and are negotiating to make direct purchases of goods from the Indian markets and particularly from the existing vendors of the plaintiff company including the defendant Nos.39 to 42.
In Paragraph 45(ii) it is alleged that the defendant Nos.1 to 42 and each of them are acting in collusion and in conspiracy with each other to defeat and completely deny the contractual rights of the plaintiffs. It is alleged that the defendant Nos.1to 38 have already secretly made contracts for procurement of materials directly from one or the other of the defendant Nos.39 to 42, who have plainly conspired and/or are determined to continue to conspire with the other defendants to do so on a regular basis. The particulars of wilful and deliberate participation in such wrongful acts by the defendant Nos.1 to 38 are mentioned in the sub-paragraphs of Paragraph 45. At this point of demurrer, it cannot be said that the pleading lacks in material particulars.
The essential elements of an economic tort, namely, adopting unlawful means so as to interfere with an existing contract with third party with an intention to cause loss thereby resulting damage are present in the plaint.
The judgment in Church of Christ Charitable Trust and Educational Charitable Society v. Ponniamman Educational Trust reported at 2012(8) SCC 706, also does not assist the plaintiff. In Church of Christ (supra) it was found that document on which the cause of action based was not produced. The suit was for specific performance to sale an immovable property. The buyer entered into an agreement of sale with the appellant-owner which never culminated in sale and such agreement was terminated. The alleged agreement was entered into by the defendant No. 2 on the basis of a power of attorney. It was found that the power of attorney only authorises certain specified acts but not any act authorising entering into an agreement of sale or to execute sale deed or admit execution before the Registrar. Order 7 Rule 14 of CPC mandates the plaintiff to produce the documents on which the cause of action is based. This document, however, was not disclosed. In such facts and circumstances it was held that when the document which forms the basis of the claim in the suit is not produced the plaint can be rejected for nondisclosure of cause of action.
In Hardesh Ores (P) Ltd. (supra), the plaintiff failing to produce any document showing renewal of lease after it had expired the plaint was dismissed. In the said matter, the appellant-plaintiffs did exercise their option under the original agreement and claimed renewal. The respondents denied the appellant's right to claim renewal in express terms and also unequivocally stated that the agreement did not stand renewed as contended by the appellants. Thus, a cause of action accrued to the appellant-plaintiffs when their right of renewal was denied by the respondents. This happened in December 2001 and, therefore, within three years from that date they ought to have taken appropriate proceedings to get their right of renewal declared and enforced by a court of law and/or to get a declaration that the agreement stood renewed for a further period of 5 years upon the appellants' exercising their option to claim renewal under the original agreement. The appellant-plaintiffs failed to do so.
It was only on 4th August, 2005 that the present suits came to be filed by the appellants in which a prayer for injunction was made with a view to enforce the terms of clauses 15 and 20 of the agreement which incorporated negative covenants prohibiting mining operation by anyone else except the appellants, or without their permission. The use of the words "during the subsistence of this agreement" in clause 15, and "during the pendency of this indenture" in clause 20 of the agreement is significant. In the absence of a document renewing the original agreement for a further period of 5 years and in the absence of any declaration from a court of law that the original agreement stood renewed automatically upon the appellants exercising their option for grant of renewal, it was held that the appellants cannot be granted relief of injunction, for the simple reason that there is no subsisting agreement evidenced by a written document or declared by a court. If there is no such agreement, there is no question of enforcing clauses 15 and 20 thereof. The appellants ought to have prayed for a declaration that their agreement stood renewed automatically on exercise of option for renewal and only on that basis could they have sought an injunction restraining the respondents from interfering with their possession and operation. Having not done so, they cannot be permitted to camouflage the real issue and claim an order of injunction without establishing the subsistence of a valid agreement. The Apex Court further held that in the instant suit as well they could have sought a declaration that the agreement stood renewed automatically but such a claim would have been barred by limitation since more than 3 years had elapsed after a categoric denial of their right claiming renewal or automatic renewal by the respondent- defendants.
On such consideration, the suit was held to be barred by limitation and, accordingly, dismissed under Order 7 Rule 11(d) of the Code of Civil Procedure.
An agreement can be oral. An oral agreement can be enforced. It can be proved by conduct and course of dealings between the parties.
It is for the plaintiff to prove at the trial the agreement pleaded in Paragraph 6 of the plaint.
Mr. Chidambaram has referred to Section 15(h) of the Specific Relief Act, 1963. The said section relates to pre-incorporation contracts. Where the promoters of company, that is, the persons who were engaged in setting up the company entered into contracts with parties would procure its formation and such contracts are within the limits of the objects of the company, then the company after its incorporation may sue to enforce the contracts and the other contracting party cannot raise any objection on the ground of privity. Conversely, the company if it ratifies such contract is bound by its obligation. This clause is conversed to Clause (e) of Section 19 of the Specific Relief Act on which Mr. Kapoor has relied on behalf of the plaintiffs. Mr. Kapoor has emphasized on the expression "warranted by the terms of the incorporation" appearing in the said section and has argued that continuous support by the defendant No.1 prior and after incorporation of the plaintiff No.1 and its assurance that all supplies for the AM Companies would be procured solely through the plaintiff No.1 are now being breached by the defendant No.1. The other way of looking at is that if a situation arises as to whether the transactions made by the company are ultra vires for which the purposes for which the company was incorporated the said phrase in Section 19(e) comes to the aid of the company to relieve the company from its liability. This specific argument of Mr. Kapoor was that the record manifests that the buying and selling was indeed warranted by the terms of incorporation of the company. The said Section 19(e) is conversed to Clause (h) of Section 15. Fry in Specific Performance, 6th Edition as stated:-
"The company itself after incorporation must either have taken the benefit of the contract, or have otherwise recognized it as a contract binding on them and the contract must be for something warranted by the terms of the incorporation."
What is meant by acceptance of the contract by the company which is to be warranted by its incorporation, is that it is not ultra vires the purpose for which the company had been incorporated. An expression of ratification of the contract, therefore, is no longer warranted. Moreover, under Section 15 or 19 of the Specific Relief Act, 1963, there is no question of bar of the suit. In a pending suit, rights of the parties were required to be determined on the basis of the evidence led by the parties with regard to their rights, interpretation of the terms of the agreements and may be relevant decisions rendered by the Courts interpreting various sections including Sections 15, 19 and 34 of the Specific Relief Act, 1963. Whether a covenant is negative or affirmative is not a question of form. It is a question of interpretation in each case whether a particular contract can be said to have a negative covenant express or implied contained in it. Hence, considering the disputes between the parties it is apparent that Order 7 Rule 11(d) which provides that plaint can be rejected in a case where the suit appears from the statement in the plaint to be barred by law could not be resorted to as there is no bar to the suit under the provisions of any law.
On the basis of the averments made in the plaint which are taken to be true and correct for the purpose of this application this Court is unable to accept the submission made on behalf of the defendant No.1 in this regard. Moreover, interpretation of the terms of the agreement to find out if the plaint discloses a cause of action is not permissible under Order 7 Rule 11(a).
The applicant perhaps would contend that the plaint discloses no reasonable cause of action. As observed by Justice Chitty in Republic of Peru Vs. Peruvian Guanco Company (1887) 36 Ch D 489: "In point of law.......every cause of action is a reasonable one". So long the plaint discloses some cause of action the mere fact that the case is weak or may not likely to succeed at the trial is no ground to reject a plaint.
In view of the aforesaid discussions, this Court is unable accept the submissions made on behalf of the defendant No.1. The application filed by the defendant No.1 is, accordingly, rejected.
The application being G.A. No.1951 of 2017 stands dismissed. However, there shall be no order as to costs.
Urgent Photostat certified copy of this judgment, if applied for, be given to the parties on usual undertaking.
(Soumen Sen, J.)