Gujarat High Court
H D F C Bank Limited vs Ashapura Minechem ... on 13 October, 2017
Author: Bela M. Trivedi
Bench: Bela M. Trivedi
C/CRA/10/2015 CAV JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
CIVIL REVISION APPLICATION NO. 10 of 2015
FOR APPROVSAL AND SIGNATURE:
HONOURABLE MS.JUSTICE BELA M. TRIVEDI Sd/-
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1 Whether Reporters of Local Papers may be allowed
to see the judgment ? YES
2 To be referred to the Reporter or not ?
YES
3 Whether their Lordships wish to see the fair copy of
the judgment ? YES
4 Whether this case involves a substantial question of
law as to the interpretation of the Constitution of YES
India or any order made thereunder ?
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H D F C BANK LIMITED....Applicant(s)
Versus
ASHAPURA MINECHEM LIMITED....Opponent(s)
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Appearance:
MR MIHIR THAKORE, SR. ADVOCATE with MR ANIP A GANDHI,
ADVOCATE for the Applicant(s) No. 1
MR MIHIR JOSHI, SR. ADVOCATE with MR S N THAKKAR, ADVOCATE for
the Opponent(s) No. 1
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CORAM: HONOURABLE MS.JUSTICE BELA M. TRIVEDI
Date : 13/10/2017
CAV JUDGMENT
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1. The applicant Bank (original defendant) by way of the present Civil Revision Application filed under Section 115 of CPC has challenged the order dated 15.12.2014 passed by the Principal Sr. Civil Judge, Jamkhambhaliya (hereinafter referred to as "the trial Court") below Exh.9 in Special Civil Suit No.72 of 2012, whereby the trial Court has rejected the said application filed by the applicant under Order VII Rule 10 and 11 read with Section 151 of CPC, seeking return and/or rejection of the plaint. With the consent of the learned Advocates for the parties, the Civil Revision Application was heard finally at the admission stage.
2. The factual matrix in nutshell giving rise to the present Civil Revision Application may be stated as under:-
2(i) The respondent (original plaintiff) has filed the suit being Special Civil Suit No.72 of 2012 against the applicant - defendant seeking various reliefs of declaration and permanent injunction as stated in paragraph 46 of the plaint, which read as under:-
"(a) For a declaration that the Master Agreement dated 15th October 2007 and all the four Transactions thereunder bearing reference nos.69026HM to 69145HM, 73359HM to 73360HM, 73773HM to 73774HM and 74217HM to 74218HM are illegal, void ab initio and Page 2 of 36 HC-NIC Page 2 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT unenforceable;
(b) For a permanent order of injunction of this Hon'ble Court restraining the Defendant, from acting under and/or in furtherance of the Master agreement dated 15th October 2007 and Transactions thereunder bearing reference nos.69026HM to 69145HM, 73359HM to 73360HM, 73773HM to 73774HM and 74217HM to 74218HM in any manner whatsoever;
(c) For a declaration that the Term Loan Agreement dated 13th August 2009 is illegal, null, void and unenforceable;
(d) For a permanent order of injunction of this Hon'ble Court restraining the Defendant, from acting under and/or in furtherance of the Term Loan Agreement dated 13th August 2009 in any manner whatsoever;
(e) For recovery of Rs.54,68,57,468/ paid to the Defendant pursuant to the Master Agreement dated 15th October 2007 and the said Transactions and an interest at the rate of 18% per annum thereon;
(f) Pending the hearing and final disposal of the present suit, for a temporary order and injunction of this Hon'ble Court staying all proceedings initiated by the Defendant before the Debts Recovery Tribunalll, Mumbai in Original Application No.29 of 2011, Original Application No.30 of 2011 and Original Application No.31 of 2011;
(g) Pending the hearing and final disposal of the present suit, for a temporary order and injunction of this Hon'ble Court restraining the Defendant, its Managing Directors, Directors, officers, agents and servants from continuing with and/or initiating any fresh proceedings against the Plaintiff in the Debts Recovery Tribunal or any other Court/Tribunal/Forum for any alleged Page 3 of 36 HC-NIC Page 3 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT claims under Master Agreement dated 15th October 2007, the said Transactions thereunder and/or the Term Loan Agreement dated 13th August 2009;
(h) Pending the hearing and final disposal of the present suit for a temporary order and injunction of this Hon'ble Court restraining the Defendant, its Managing Directors, Directors, officers, agents and servants from acting under and/or in pursuance of and/or in furtherance thereto, or making any demands out of or in connection with said Master Agreement dated 15th October 2007 and/or the said Transactions thereunder;
(i) Pending the hearing and final disposal of the present suit for a temporary order and injunction of this Hon'ble Court restraining the Defendant, its Managing Directors, Directors, officers, agents and servants from acting under and/or in pursuance of and/or in furtherance thereto or making any demands out of or in connection with the Term Loan Agreement dated 13th August 2009 including adjustments and/or appropriating any sums and/or receiving and/or realizing any sums for recovery of the amounts allegedly due thereunder."
2(ii) It has been alleged in the plaint inter alia that the plaintiff is an exporter of bauxite and bentonite, having its offices at various places in India, including at Mumbai and Khambhaliya. The defendant is a banking company incorporated under the Indian Laws, with whom the plaintiff had banking relationship since 2007. Since the plaintiff was an exporter of minerals, it was Page 4 of 36 HC-NIC Page 4 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT constantly exposed to the risk arising out of the fluctuation in the exchange rate of foreign currency. Hence, considering the recommendation of the defendant Bank and considering the fact that export of bauxite would increase in future, the plaintiff in order to protect itself against the risk of depreciation of the dollar, which would impact the business profit, agreed to enter into a Master Agreement to hedge the foreign currency risks arising out of the business of export of bauxite. The Master agreement called "International Swaps and Derivatives Association Master Agreement" was entered into between the parties on 15th October, 2007 and the same was intended to be a foreign exchange derivative transactions in the nature of foreign currency rupee option between the parties, wherein the plaintiff was to sell USD and buy INR from the defendant at a predetermined price. At the end of every month, if the dollar rate was below the predetermined rate, the difference between the predetermined rate and the prevalent rate was payable by the defendant to the plaintiff, whereas if the prevailing dollar rate was more than the predetermined rate, then the plaintiff was liable to pay double the difference to the defendant. Under the said Master agreement, the plaintiff and the defendant had entered into Page 5 of 36 HC-NIC Page 5 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT four transactions in the nature of foreign currency rupee options bearing Reference Nos.69026HM to 69145HM, 73359HM to 73360HM, 73773HM to 73774HM and 74217HM to 74218HM. The said four transactions put together involved a notional of 150 million dollars or the equivalent of around Rs.592 Cr., at the prevailing spot rates.
2(iii) It has been further averred in the plaint that apart from the inherent features, which make the transactions illegal and opposed to public policy, the overall exposure under such transactions of the plaintiff patently exceeded the permissible maximum limit based on the past performance and/or the receivables pending from its contracts. The defendant was aware of other similar contracts that the plaintiff had entered into with other Banks on account of the said risks in the mining and export business of the plaintiff, and yet the defendant did not conduct the activity of due diligence. The plaintiff did not realize that the defendant had in gross breach of their fiduciary duty, on the basis of misrepresentations, fraudulently induced the plaintiff to enter into the said transactions, which resulted in losses to the plaintiff and gross profits to the defendant. As per the Reserve Bank of India ("RBI" for short) and Foreign Exchange Management Act Page 6 of 36 HC-NIC Page 6 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT ("FEMA" for short) guidelines/circulars the onus was upon the defendant Bank to ensure that the plaintiff had understood the risks associated with the transactions and to ensure that the transactions were consistent with the plaintiff's business, financial operations, skills and risks, however, no such exercise was carried out by the defendant. The plaintiff was never appraised of the fact that the Master agreement and the said transactions were in fact a wager within the meaning of Section 30 of the Indian Contract Act. The defendant being a Bank of good repute and supposedly excellent services was in a position to exercise undue influence over and dominate the will of the plaintiff company, which had no expertise or skill or adequate knowledge in the field of foreign exchange management. The said Master agreement and the said transactions, therefore, were voidable at the instance of the plaintiff under Sections 17 and 18 of the Indian Contract Act and void ab initio under Section 23 of the Indian Contract Act.
2(iv) It has been further averred that in or around June 2009 the defendant claimed and demanded a sum of Rs.22 Cr., approximately, which the plaintiff was made liable to pay under the said transactions. As the plaintiff was not in a position to pay the said amount, the defendant further misled the Page 7 of 36 HC-NIC Page 7 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT plaintiff by suggesting that they would grant a Term loan to the plaintiff of an equivalent amount. The plaintiff having no other choice borrowed money from the market to make payment against the said alleged debt and made payment of Rs.22 Cr., to the defendant, and in return the defendant released a sum of Rs.25 Cr., under the guise of Term loan for the purpose of partial reimbursement of capital expenditure incurred for setting up Kaolin Project at Village Melakulam, Taluka Trivandrum, District Trivandrum, Kerala. In this regard, Term loan agreement dated 13.8.2009 was executed between the parties.
2(v) It is further case of the plaintiff that in early 2010, the plaintiff realizing the illegality of the Master agreement and the transactions thereunder, stopped making further payments under the said contracts, and therefore, various demands raised of into crores of rupees came to be made by the defendant from the plaintiff as per the letters dated 21.10.2010, 9.12.2010, 14.1.2011 and 29.6.2012. The defendant by its letter dated 19.4.2011 demanded Rs.26,62,33,451.20 being alleged dues arising out of the Term loan along with the interest thereon. The cheques that were issued by the plaintiff to the defendant by way of collateral security for the Term loan came to be dishonoured by the banks for which the Page 8 of 36 HC-NIC Page 8 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT defendant had filed various criminal complaints against the plaintiff under Section 138 of the Negotiable Instrument Act (hereinafter referred to as "NI Act"). According to the plaintiff an article was published in the daily newspaper the Times of India in April 2011 stating that the RBI had fined 19 banks for violating its guidelines on derivatives. The defendant Bank was amongst the said banks, which was also penalized by the RBI.
2(vi) It has been further stated in the plaint that the plaintiff was willing to return the amount of Rs.55,52,500/- gained by the plaintiff under the said transactions, to the defendant. However, the plaintiff had paid the amount of Rs.54,68,57,468/- under the said transactions, which the plaintiff was seeking to recover by way of the present suit.
2(vii) As regards the jurisdiction of the trial Court, it has been stated in the plaint that the cause of action had partly arisen in Khambhaliya inasmuch as the authorized signatory of the plaintiff had signed and executed the Master agreement in Khambhaliya and the factory of the plaintiff was also situated in Khamabhaliya, and therefore, the major export business of bauxite by the plaintiff was conducted from Khambhaliya.
Page 9 of 36 HC-NIC Page 9 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT 2(viii) It has been further stated that the defendant by way of original application Nos.29, 30, and 31 of 2011 had filed
proceedings against the plaintiff before the Debts Recovery Tribunal (hereinafter referred to as "the DRT") and had also filed Misc.
Applications in the said original
applications seeking interim reliefs for
restraining the plaintiff from alienating or creating third party rights in Kaolin land property of the plaintiff. Since the plaintiff had no intention of parting away with any of the suit properties, the Presiding Officer of the DRT had disposed of the said Misc. Applications upon the statement made by the plaintiff in that regard.
2(ix) It is further stated that since the plaintiff had suffered enormous losses, it had to make a reference to the Board of Industrial and Financial Reconstruction (hereinafter referred to as "the BIFR") vide the application dated 31.5.2011, which was registered as Case No.34 of 2011 by the BIFR. In the said case of the plaintiff, the BIFR on 2.11.2011 passed the order inter alia stating that "the HDFC Bank was allowed to approach the competent Court for crystallization of their dues and that they shall approach the Board whenever their dues are crystallized. Till then, they will not Page 10 of 36 HC-NIC Page 10 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT enforce the recovery of their dues from the company, as agreed by them in the hearing." According to the plaintiff, despite the said order passed by the BIFR, the defendant filed interim applications in the original applications in the DRT on or around 1.12.2011 seeking the stay on the further hearing of the original applications to be vacated, and the Presiding Officer of the DRT allowed the said interim applications vide the order dated 17.1.2012 directing that the further hearing of the original applications would proceed in accordance with law and that the recovery certificate, if issued, would not be enforced without the permission of the BIFR. Being aggrieved by the said order, the plaintiff filed writ petitions before the Bombay High Court, which came to be dismissed by the order dated 26.11.2012. The plaintiff thereafter filed the present suit before the trial Court on 24.12.2012 seeking the reliefs as stated herein above.
2(x) The present applicant - original defendant submitted the application at Exh.9 under Order VII Rule 10 and 11 read with Section 151 of CPC seeking to return and/or reject the plaint filed in the suit mainly on the ground that the trial Court did not have the jurisdiction to entertain the suit, in view of the ISDA Master agreement and the Term loan agreement, as also Section 20 of Page 11 of 36 HC-NIC Page 11 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT CPC. The plaint was also sought to be rejected on the ground that it was barred by law of limitation, was barred by provisions contained in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, barred by the provisions contained in Section 41(b) and 41(h) of the Specific Relief Act, 1963, barred by Section 13 of the Security and Reconstruction of Financial Assets and Enforcement of Security and Interest Act etc. The plaint was also sought to be rejected on the ground that it did not disclose any cause of action, and that the suit was a mala fide attempt on the part of the plaintiff to avoid and delay the payment of the amounts that had fallen due to the defendant and was a gross abuse of Court. The said application has been rejected by the trial Court, against which the present Civil Revision Application has been filed.
3. The learned Sr. Advocate Mr.Mihir Thakore for the applicant Bank assailing the impugned order passed by the trial Court, and relying upon the grounds agitated in the application filed by the applicant - original defendant seeking return/rejection of the plaint submitted that the trial Court had failed to appreciate that the trial Court did not have the territorial jurisdiction to entertain the suit in view of the provisions of the Term loan agreement dated 13.8.2009 read with Section 20 of CPC, and Page 12 of 36 HC-NIC Page 12 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT therefore, the plaint was liable to be returned for being presented to the competent Court having jurisdiction. Referring to the documents annexed to the plaint, he implored that Master agreement and the Term loan agreement having been executed and signed at Mumbai and all other legal proceedings having also been initiated and pending on the same subject matter, before the Courts/Tribunals at Mumbai, the trial Court at Khambhaliya did not have the jurisdiction to entertain the suit. In the alternative, he submitted that the plaint was liable to be rejected mainly under Clause (a) of Rule 11, Order VII as it did not disclose any cause of action, and was filed with mala fide intention, misusing the process of law to avoid and/or delay the payment of the amounts that had fallen due to the defendant Bank. Mr.Thakore pressing into service the provisions contained in Sections 17 and 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as "the RDDBFI Act") submitted that the Debts Recovery Tribunal would have the exclusive jurisdiction in the matter of recovery of debts and in the instant case the defendant - Bank has already initiated the recovery proceedings before the DRT-II, Mumbai and the issues raised in the plaint are directly and substantially the issues before the DRT in the recovery proceedings initiated by the defendant. Reliance is placed on the decision of the Supreme Page 13 of 36 HC-NIC Page 13 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT Court in case of I.T.C. Limited Vs. Debts Recovery Appellate Tribunal & Ors., reported in AIR 1998 SC 634 to submit that in absence of valid cause of action shown in the plaint, the suit was liable to be rejected under Order VII Rule 11 of CPC. He has also relied upon the decision of Delhi High Court in case of Radnik Exports Vs. Standard Chartered Bank, reported in (2014) DLT 436. Pressing into service the provisions contained in the Specific Relief Act, more particularly Section 41(b) and Section 41(h) thereof, Mr.Thakore has submitted that the prayers contained in the suit could not be granted as per the said provisions. Mr.Thakore also submitted that the suit containing the prayer seeking injunction against the defendant Bank from enforcing the securities available with the defendant Bank was also barred under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'SARFAESI Act'). According to Mr.Thakore, the suit is even otherwise vexatious and filed with ulterior motive abusing the process of law, and therefore also, was liable to be rejected in view of the observations made by the Supreme Court in case of T. Arvindam Vs. T. V. Satyapal, reported in (1977) 4 SCC 467.
4. Per contra, the learned Sr. Advocate Mr.Mihir Joshi for the respondent - plaintiff raising preliminary objection with regard to the very Page 14 of 36 HC-NIC Page 14 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT maintainability of the revision application submitted that the order rejecting the application of the defendant seeking return of the plaint under Order VII Rule 10 could not be said to be an order finally disposing of the suit and the revision application would not be maintainable in view of the proviso to Section 115 of CPC. In this regard he has relied upon the decision of this Court in case of Vimal Coop. Housing Society Ltd. Vs. Rajendrakumar Shankerbhai Bhagiya, reported in 2003(2) GLH 58. Mr.Joshi has also relied upon the decision of this Court in case of Patel Enterprise & Anr. Vs. Gujarat Tea Depot Company & Anr., decided on 17.7.2017 to submit that the composite application under Rule 10 and 11 of Order VII filed by the applicant before the trial Court was also not maintainable. As regards the rejection of the plaint under Order VII Rule 11, Mr.Joshi has relied upon the latest decision of the Supreme Court in case of Kuldeep Singh Pathania Vs. Bikram Singh Jaryal, reported in (2017) 5 SCC 345, to submit that the plaint can not be rejected if the plaint discloses the cause of action and that the cause of action has to be gathered on the basis of the averments made in the plaint. Merely because the Court is of the opinion that the plaintiff may not succeed in the suit can not be a ground for rejection of the plaint. Mr.Joshi has also relied upon the decision of the Supreme Court in case of Sopan Page 15 of 36 HC-NIC Page 15 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT Sukhdeo Sable and Ors. Vs. Assistant Charity Commissioner and Ors., reported in (2004) 3 SCC 137 and in case of Mayar (H.K.) Ltd. and Ors. Vs. Owners and Parties, Vessel M. V. Fortune Express & Ors., reported AIR 2006 SC 1828 and submitted that the averments made in the plaint as a whole have to be seen to find out whether clause (d) of Rule 11 of Order VII was applicable. According to him, the trial Court having rightly passed the order rejecting the application of the defendant Bank, and this Court having limited jurisdiction under Section 115 of CPC may not interfere with the same in view of the decision of the Supreme Court in case of Hindustan Petroleum Corporation Limited Vs. Dilbahar Singh, reported in 2014 (9) SCC 78.
5. In response to the preliminary objection raised by the learned Sr. Advocate Mr.Mihir Joshi as regards the maintainability of the composite application under Rule 10 and 11 of Order VII of CPC filed by the applicant - defendant before the trial Court, the learned Sr. Advocate Mr.Mihir Thakore has submitted that the applicants had made alternative prayers for return of the plaint under Rule 10 and rejection of the plaint under Rule 11 for the grounds stated therein, nonetheless if the Court is of the opinion that such a composite application with alternative prayers was not maintainable, he would not press for the return of the plaint under Rule 10 and the present revision application be treated as Page 16 of 36 HC-NIC Page 16 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT having been filed against the order rejecting the application filed by the applicant under Rule 11 of Order VII of CPC.
6. It is a trite law that plaint could be returned at any stage of the suit to be presented to the Court in which the suit should have been instituted, if the Court finds that the Court did not have the territorial or pecuniary jurisdiction to try the suit. There are no conditions or circumstances specified in Rule 10 for return of the plaint, as specified for rejection of the plaint under Rule 11 of Order VII. Though not specifically stated, Rule 11 casts duty on the Court to reject the plaint, if the case falls under any of the clauses mentioned therein. If both the provisions are perused closely, it transpires that both are independent provisions available to the defendant in the suit. Where the plaint does not disclose a cause of action, it is liable to be rejected under Clause (a) of Rule 11 and could not be returned under Rule 10. Similarly, where the relief claimed is not valued properly or if properly valued, but the plaint is written upon paper insufficiently stamped, and the plaintiff on being required by the Court to correct the valuation or to submit the requisite stamp paper as the case may be within the time fixed by the Court fails to do so, the plaint is liable to be rejected under Clause (b) or Clause (c), as the case may be, of Rule 11 and could not be returned Page 17 of 36 HC-NIC Page 17 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT under Rule 10. Similarly, where the suit appears from the statement made in the plaint to be barred under any law, then also the plaint is liable to be rejected Clause (d) of under Rule 11 and could not be returned under Rule 10. Thus, a duty is cast on the Court to reject the plaint when the same is hit by any of the infirmities provided in the clauses of Rule 11 even without the intervention of the defendant. Whereas the plaint could be returned under Rule 10 only when the Court comes to the conclusion at any stage of the suit that the plaint was not presented to the Court having jurisdiction to try the suit, and under the circumstances, it has to be returned to be presented to the Court in which the suit should have been instituted. Thus, on the plain reading of the said provisions as contained in Rule 10 and 11 of Order VII, it clearly emerges that they are mutually exclusive to each other, and the reliefs could not be prayed for alternatively, either under Rule 10 or under Rule 11 as sought to be prayed for in the instant case by the applicant - defendant before the trial Court. The Court, therefore, is the opinion that such a composite application under Rule 10 and Rule 11 of Order VII as such would not be maintainable. In any case, considering the submission of Mr.Thakore, the present revision application is treated as having been filed against the order passed by the trial Court rejecting the application for rejection of the Page 18 of 36 HC-NIC Page 18 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT plaint under Rule 11 of Order VII of CPC.
7. It is needless to say that the law as regards the rejection of plaint under Order VII Rule 11 on the ground of non-disclosure of cause of action under Clause (a) and on the ground of the suit being barred by law as contemplated in Clause (d) is well settled. The Supreme Court in case of Sopan Sukhdeo Sable and Ors. Vs. Assistant Charity Commissioner and Ors. (supra) while laying down the spectrum of Order VII Rule 11 in the legal ambit has reiterated the earlier position laid down in various judgements which may be reproduced as under:-
" 10. In Saleem Bhai and Ors. v. State of Maharashtra and Ors., it was held with reference to Order VII Rule 11 of the Code that the relevant facts which need to be looked into for deciding an application thereunder are the averments in the plaint. The trial Court can exercise the power 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. For the purposes of deciding an application under clauses (a) and (d) of Order VII Rule 11 of the Code, the averments in the plaint are the germane; the pleas taken by the defendant in the written statement would be wholly irrelevant at that stage.
11. In I.T.C. Ltd. v. Debts Recovery Appellate Tribunal and Ors., it was held that the basic question to be decided while dealing with an application filed under Order VII Rule 11 of the Code is whether a real cause of action has been set out in the plaint or something purely illusory has been Page 19 of 36 HC-NIC Page 19 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT stated with a view to get out of Order VII Rule 11 of the Code.
12. The trial Court must remember that if on a meaningful and 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 the power under Order VII Rule 11 of the Code taking care to see that the ground mentioned therein is fulfilled. If clever drafting has created the illusion of a cause of action, it has to be nipped in the bud at the first hearing by examining the party searchingly under Order X of the Code.
13. It is trite law that not any particular plea has to be considered, and the whole plaint has to be read. As was observed by this Court in Roop Lal Sathi v. Nachhattar Singh Gill (1982 (3) SCC 487), only a part of the plaint cannot be rejected and if no cause of action is disclosed, the plaint as a whole must be rejected.
14. In Raptakos Brett & Co.Ltd. v. Ganesh Property (1998 (7) SCC 184) it was observed that the averments in the plaint as a whole have to be seen to find out whether clause
(d) of Rule 11 of Order VII was applicable.
15. There cannot be any compartmentalization, 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 Page 20 of 36 HC-NIC Page 20 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT subtraction or 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 hairsplitting technicalities."
8. In Mayar (H.K.) Ltd. and Ors. Vs. Owners and Parties, Vessel M. V. Fortune Express & Ors. (supra) dealt with the similar issue and held in paragraph 11 as under:-
"11. 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 VII 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, willful default, undue influence or of the same nature. So long as the plaint discloses some cause of action which requires determination by the court, mere fact that in the opinion of the Judge the plaintiff may not succeed cannot be a ground for rejection of the plaint. In the present case, the averments made in the plaint, as has been noticed by Page 21 of 36 HC-NIC Page 21 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT us, do disclose the cause of action and, therefore, the High Court has rightly said that the powers under Order VII Rule 11 of the Code cannot be exercised for rejection of the suit filed by the plaintiff appellants."
9. Yet in another case of Popat and Kotecha Property Vs. State Bank of India Staff Association, reported in 2005 (7) SCC 510, the Supreme Court keeping in view the principles set out in Sopan Sukhdeo Sable and Ors. Vs. Assistant Charity Commissioner and Ors. (supra), observed in paragraphs 23 as under:-
"23. Rule 11 of Order VII lays down an independent remedy made available to the defendant to challenge the maintainability of the suit itself, irrespective of his right to contest the same on merits. The law ostensibly does not contemplate any stage when the objection can be raised, and also does not say in express terms about the filing of the written statement. Instead, the word "shall" is used clearly implying thereby that it casts a duty on the Court to perform its obligation in rejecting the plaint when the same is hit by any of the infirmities provided in the four Clauses of Rule 11, even without intervention of the defendant. ..."
10. In the light of the afore-stated legal position, let us examine the averments made in the plaint so as to find out whether the plaint discloses the cause of action, and whether the suit is barred under any law as contemplated in Clause
(a) and Clause (d) respectively of Rule 11 of Order VII. At this juncture, it would be also Page 22 of 36 HC-NIC Page 22 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT apposite to mention that Order VI Rule 2 requires that every pleadings shall contain, and contain only a statement in concise form and of material facts on which the party pleading relies for his claim or defence as the case may be, but not the evidence by which they are to be proved. Thus, though the pleadings must contain a statement in concise form of material facts, it need not contain the evidence by which they are to be proved. At this juncture, it would be also relevant to mention that Order VII Rule 1 states as to what particulars should be contained in the plaint, and as per Clause (e) of the said Rule, the plaint must contain the facts constituting the cause of action, and when it arose. As per Clause (f) thereof, the plaint also must contain the facts showing that the Court has jurisdiction. The distinction between "material facts" and "particulars" has been succinctly described by the Supreme Court in case of Sopan Sukhdeo Sable and Ors. Vs. Assistant Charity Commissioner and Ors. (supra). Paragraph 20 thereof reads as under:-
"20. There is distinction between 'material facts' and 'particulars'. The words 'material facts' show that the facts necessary to formulate a complete cause of action must be stated. Omission of a single material fact leads to an incomplete cause of action and the statement or plaint becomes bad. The distinction which has been made between 'material facts' and 'particulars' was brought by Scott, L.J. in Bruce v. Odhams Press Ltd. (1936) 1 KB 697 in the following passage :Page 23 of 36
HC-NIC Page 23 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT The cardinal provision in Rule 4 is that the statement of claim must state the material facts. The word "material" means necessary for the purpose of formulating a complete cause of action; and if any one "material"
statement is omitted, the statement of claim is bad; it is "demurrable" in the old phraseology, and in the new is liable to be "struck out" under R.S.C. Order XXV, Rule 4 (see Philipps v. Philipps ((1878) 4 QBD
127)); or "a further and better statement of claim" may be ordered under Rule 7.
The function of "particulars" under Rule 6 is quite different. They are not to be used in order to fill material gaps in a demurrable statement of claim gaps which ought to have been filled by appropriate statements of the various material facts which together constitute the plaintiff's cause of action. The use of particulars is intended to meet a further and quite separate requirement of pleading, imposed in fairness and justice to the defendant. Their function is to fill in the picture of the plaintiff's cause of action with information sufficiently detailed to put the defendant on his guard as to the case he had to meet and to enable him to prepare for trial.
The dictum of Scott, L.J. in Bruce case (supra) has been quoted with approval by this Court in Samant N. Balkrishna v. George Fernandez (1969 (3) SCC 238), and the distinction between "material facts" and "particulars" was brought out in the following terms:
The word 'material' shows that the facts necessary to formulate a complete cause of action must be stated. Omission of a single material fact leads to an incomplete cause of action and the statement of claim becomes bad. The function of particulars is to present as full a picture of the cause of action with such further information in detail as to make the opposite party Page 24 of 36 HC-NIC Page 24 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT understand the case he will have to meet.
Rule 11 of Order VII lays down an independent remedy made available to the defendant to challenge the maintainability of the suit itself, irrespective of his right to contest the same on merits. The law ostensibly does not contemplate at any stage when the objections can be raised, and also does not say in express terms about the filing of a written statement. Instead, the word 'shall' is used clearly implying thereby that it casts a duty on the Court to perform its obligations in rejecting the plaint when the same is hit by any of the infirmities provided in the four clauses of Rule 11, even without intervention of the defendant. In any event, rejection of the plaint under Rule 11 does not preclude the plaintiffs from presenting a fresh plaint in terms of Rule 13."
11. From the afore-stated provisions contained in Order VI Rule 2 and Order VII Rule 1 it clearly emerges that the pleadings i.e. the plaint in the instant case, must state the material facts constituting the cause of action and as to when it arose, and omission of a single material fact leads to an incomplete cause of action, and the plaint becomes bad. Such infirmity may attract Clause (d) of Rule 11 of Order VII. The word "shall" used in Order VII Rule 11 also cast duty on the Court to reject the plaint when it is hit by any of the clauses mentioned in Rule 11.
12. As stated herein above, the suit has been filed by the respondent - plaintiff seeking various reliefs inter alia for declaration that the Master agreement dated 15th October 2007 and the transactions made therein were illegal and void Page 25 of 36 HC-NIC Page 25 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT ab initio as well as for declaration that the Term loan agreement dated 13.8.2009 was also illegal and void ab initio, and for permanent injunction restraining the defendant from acting under and/or in furtherance of the said Master agreement and the Term loan agreement in any manner whatsoever, as also for recovery of Rs.54,68,57,468/- paid by the plaintiff to the defendant pursuant to the said Master agreement. The respondent - plaintiff has also sought temporary injunction for staying the proceedings initiated by the applicant - defendant before the DRT-II, Mumbai and for restraining the defendant from initiating fresh proceedings against the plaintiff in the DRT or in any other Court pursuant to the said Master agreement and the Term loan agreement.
13. Now, if the substance of the pleading of the plaintiff is looked into without any addition or subtraction, it clearly transpires that the suit is filed by the plaintiff not only with mala fide intention to misuse and abuse the process of law, as will be discussed herein under, the plaint also does not disclose the material facts constituting cause of action and the material facts as to when it arose, as contemplated in Rule 1(e) of Order VII. As held by the Supreme Court in case of Sopan Sukhdeo Sable and Ors. Vs. Assistant Charity Commissioner and Ors. (supra), the facts necessary to formulate a complete cause of action must be stated in the plaint and Page 26 of 36 HC-NIC Page 26 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT omission of a single material fact would lead to an incomplete cause of action. When Rule 1 of Order VII requires the particulars as mentioned therein to be stated in the plaint, more particularly the facts constituting cause of action and as to when it arose, the omission to mention such particulars in the plaint would make the plaint defective leading to the conclusion that it did not disclose the cause of action.
14. When the specific query was raised by the Court to point out from the averments made in the plaint as to how and when the cause of action was stated to have arisen, the learned Sr. Advocate Mr.Joshi was not in a position to point out the same. From the bare reading of the plaint also it appears that though the paragraphs in the plaint have been separately numbered with titles like "the parties, preliminary back ground, the facts, grounds for ad-interim reliefs, limitation, jurisdiction, valuation, no other suit, prayers," etc., there is no paragraph specifically stating as to which facts constituted cause of action and as to when such cause of action, in fact, had arisen for filing the suit. The respondent - plaintiff has averred inter alia with regard to the execution of the Master agreement in the year 2007 and execution of the Term loan agreement in the year 2009, however, has remained conveniently silent as to when such agreements became illegal or void, requiring the plaintiff to file the suit. The Page 27 of 36 HC-NIC Page 27 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT respondent plaintiff has also remained completely silent as to how and when the cause of action for seeking the reliefs claimed in the suit had arisen. Such omission to state material facts as regards cause of action is a material omission, making the plaint bad.
15. The respondent plaintiff has alleged inter alia that the plaintiff did not realize that the defendant had, in gross breach of its fiduciary duty on the basis of misrepresentations, fraudulently induced the plaintiff to enter into the transactions under the Master agreement, which resulted in losses to the plaintiff and profits to the defendants. It is pertinent to note that, as stated in the plaint itself, the plaintiff was an exporter inter alia of bauxite and bentonite and was constantly exposed to the risks arising out of the fluctuation in the exchange rate of foreign currency, and therefore, had entered into the Master agreement with the defendant bank. Hence, it did not lie in the mouth of the plaintiff company to state that the respondent - plaintiff was fraudulently induced by the defendant Bank to enter into such agreement or transactions under such agreement in question. The plaintiff has also stated in the plaint that the plaintiff had gained Rs.55,52,500/- out of the transactions entered into with the defendant Bank. Of course it is also stated that the plaintiff was willing to return the said amount gained by it. However, as Page 28 of 36 HC-NIC Page 28 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT stated herein above, the recovery of the amount of Rs.54,68,57,468/-, has been claimed, without mentioning as to when and how the said amount was paid by the plaintiff to the defendant and as to when they became payable by the defendant. It can not be gain-said that for the purpose of ascertaining as to when the period of limitation had started running for seeking the reliefs claimed in the suit, such facts would be material facts to show cause of action. For seeking declarations as regards the Master agreement and the transactions made thereunder the date of knowledge about the same having been found to be fraudulent would be a material fact required to be stated in the plaint, which is also absolutely absent in the instant case. Mere allegation of fraud made in the plaint without stating the particulars of fraud and misrepresentation would not constitute cause of action. As per the settled legal position stated herein above, a cause of action is a bundle of facts which are required to be proved for obtaining the reliefs and for the said purpose, the material facts with regard to misrepresentation, fraud, undue influence are required to be stated in the plaint itself.
16. On the contrary, it appears that the suit was filed by the respondent in the Court of Khambhaliya seeking various reliefs only with a view to frustrate the proceedings initiated by the defendant Bank in the DRT-II, Mumbai and that Page 29 of 36 HC-NIC Page 29 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT too, after having failed to obtain the desired reliefs from the Bombay High Court against the orders passed by the DRT-II, Mumbai. As transpiring from the paragraph Nos.29 to 34 of the plaint, it clearly emerges that the defendant Bank had filed the original Application Nos.29, 30 and 31 of 2011 before the DRT-II, Mumbai for the recovery of its dues and had also filed interim applications in the said original applications, which were allowed by the said Tribunal directing that the further hearing of the original Applications would proceed in accordance with law and the recovery certificate, if issued, would not be enforced without the permission of the BIFR, as the plaintiff had filed the proceedings before the BIFR under SICA. The BIFR in the said case of the plaintiff had passed the order inter alia permitting the applicant Bank to approach the competent Court for crystallization of their dues and to approach the Board whenever their dues were crystallized. The orders passed by the said DRT were challenged by the plaintiff by filing the writ petition in the Bombay High Court, which were dismissed by the order dated 26.11.2012 and thereafter the suit was filed before the Court at Khambhaliya on 24.12.2012 seeking various reliefs, including the injunction for staying of the proceedings initiated by the defendant Bank before the DRT- II, Mumbai in O.A. Nos.29 of 2011, 30 of 2011 and 31 of 2011. At this juncture, it may be noted Page 30 of 36 HC-NIC Page 30 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT that the Tribunal constituted under the DRT Act has the jurisdiction, powers and authority to entertain and decide the applications of the Banks and Financial Institutions for recovery of debts due to such banks and financial institutions as contemplated under Section 17 of the DRT Act, and that the jurisdiction of all Courts and authorities, except the Supreme Court and the High Court, exercising the jurisdiction under Article 226 and 227 of the Constitution of India, is barred in relation to the matters specified in Section 17, as per Section 18 of the said Act. In view of the said provisions contained in Sections 17 and 18 of the DRT Act, the suit before the Civil Court in relation to the matters required to be decided by the DRT is barred.
17. Though it has been sought to be submitted by the learned Sr. Advocate Mr.Joshi relying upon the decision of the Supreme Court in case of Nahar Industrial Enterprises Limited Vs. Hong Kong and Shanghai Banking Corporation, reported in (2009) 8 SCC 646 that the jurisdiction of the Civil Court could not be said to be completely barred under Sections 17 and 18 of the DRT Act, and the reliefs claimed in the suit by the respondent plaintiff could not be granted by the DRT, the said submission has no force. The relevant observations made by the Supreme Court may be reproduced as under:-
Page 31 of 36HC-NIC Page 31 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT "117. The Act, although, was enacted for a specific purpose but having regard to the exclusion of jurisdiction expressly provided for in Sections 17 and 18 of the Act, it is difficult to hold that a civil court's jurisdiction is completely ousted.
Indisputably the banks and the financial institutions for the purpose of enforcement of their claim for a sum below Rs.10 lakhs would have to file civil suits before the civil courts. It is only for the claims of the banks and the financial institutions above the aforementioned sum that they have to approach the Debt Recovery Tribunal. It is also without any cavil that the banks and the financial institutions, keeping in view the provisions of Sections 17 and 18 of the Act, are necessarily required to file their claim petitions before the Tribunal. The converse is not true. Debtors can file their claims of set off or counterclaims only when a claim application is filed and not otherwise. Even in a given situation the banks and/or the financial institutions can ask the Tribunal to pass an appropriate order for getting the claims of setoff or the counter claims, determined by a civil court. The Tribunal is not a high powered tribunal. It is a one man Tribunal. Unlike some Special Acts, as for example Andhra Pradesh Land Grabbing (Prohibition) Act, 1982 it does not contain a deeming provision that the Tribunal would be deemed to be a civil court.
118. The liabilities and rights of the parties have not been created under the Act. Only a new forum has been created. The banks and the financial institutions cannot approach the Tribunal unless the debt has become due. In such a contingency, indisputably a civil suit would lie. There is a possibility that the debtor may file preemptive suits and obtain orders of injunction, but the same alone, in our opinion, by itself cannot be held to be a Page 32 of 36 HC-NIC Page 32 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT ground to completely oust the jurisdiction of the civil court in the teeth of Section 9 of the Code. Recourse to the other provisions of the Code will have to be resorted to for redressal of his individual grievances."
18. In the instant case, the applicant Bank having already initiated the proceedings under Section 17 of the DRT Act, for crystallizing their dues as permitted by the BIFR, the suit filed by the respondent - plaintiff seeking reliefs in respect of the same subject matter would be completely barred under Section 18 of the said Act. It can not be gainsaid that under Section 17 the Tribunal has powers and jurisdiction to entertain and decide applications from the banks and financial institutions for recovery of debts, and under Section 18 no other Court or authority has jurisdiction or powers in relation to the matters specified in Section 17. The learned Sr. Advocate Mr.Joshi would have been justified in relying upon the observations made by the Supreme Court in case of Nahar Industrial Enterprises Limited Vs. Hong Kong and Shanghai Banking Corporation (supra), if the bank had not filed applications under Section 17 for recovery of debts due to the bank, and if the respondent had filed peremptory suit for obtaining orders of injunction against the applicant Bank. However, when the applicant Bank has filed the proceedings before the DRT, the respondent was expected to claim set off or counter-claim in respect of the Page 33 of 36 HC-NIC Page 33 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT transactions in question, which were also the subject matter of the proceedings before the DRT. The respondent could not have asked for the prayers in the suit seeking stay of the proceedings pending before the DRT, Mumbai, which was not the Tribunal subordinate to the trial Court. As rightly submitted by the learned Sr. Advocate Mr.Thakore such a relief of injunction for restraining any person from instituting or prosecuting any proceedings in a Court not subordinate to that from which the injunction is sought, would also be barred under Clause (b) of Section 41 of the Specific Relief Act. The respondent - plaintiff instead of filing counter- claim or making claim of set off in the proceedings initiated by the applicant Bank before the DRT, Mumbai, has filed the suit for recovery of the amount in respect of the same subject matter, on which applicant Bank has filed the proceedings before the DRT, Mumbai, which would also be not tenable in view of Clause (h) of Section 41 of the Specific Relief Act. Such a vexatious and dishonest litigation deserves to be dismissed right at the threshold.
19. As held by Supreme Court in case of T. Arvindam Vs. T. V. Satyapal, reported in (1977) 4 SCC 467, followed in N. V. Srinivasa Murthy Vs. Mariyamma, reported in (2005) 5 SCC 548, and various other cases, if clever drafting has created an illusion of a cause of action, the Court must nip it in the bud at the first Page 34 of 36 HC-NIC Page 34 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT hearing.
20. In view of the above, the Court is of the opinion that the plaint, not disclosing the cause of action and even otherwise barred under the provisions contained in Section 18 of the DRT Act, deserves to be rejected under Clause (a) and
(d) of Rule 11 of Order VII. The Court is also of the opinion that the suit filed by the respondent is absolutely vexatious and dishonest litigation, filed with a view to misuse and abuse the process of law to avoid payments to the applicant Bank. The trial Court having failed to discharge the statutory duty cast upon it under Order VII Rule 11, and having failed to exercise the jurisdiction vested in it, the impugned order passed by it deserves to be set aside and is hereby set aside. The plaint of the suit being Special Civil Suit No.72 of 2012 is rejected under Clause (a) and (d) of Rule 11 of Order VII of CPC.
21. The Civil Revision Application stands allowed accordingly.
(BELA M. TRIVEDI, J.) FURTHER ORDER:
Page 35 of 36HC-NIC Page 35 of 36 Created On Sat Oct 14 00:32:18 IST 2017 C/CRA/10/2015 CAV JUDGMENT The learned Advocate Mr.S. N. Thakkar for the respondent has requested to stay the operation of this order passed by the Court, however, the same is rejected. When the plaint is rejected, there is nothing to be stayed in the matter.
(BELA M. TRIVEDI, J.) vinod Page 36 of 36 HC-NIC Page 36 of 36 Created On Sat Oct 14 00:32:18 IST 2017