Bombay High Court
Antara Housing Llp vs Primeland Constructions on 3 October, 2022
Author: N.J. Jamadar
Bench: N.J. Jamadar
sjl-15542-2022.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SUMMONS FOR JUDGMENT (L) NO.15542 OF 2022
WITH
INTERIM APPLICATION (L) NO.10318 OF 2022
IN
COMMERCIAL SUMMARY SUIT NO.20 OF 2022
Antara Housing LLP ...Plaintiff
vs.
VISHAL
SUBHASH M/s.Primeland Constructions ...Defendant
PAREKAR
Digitally signed by
VISHAL SUBHASH
PAREKAR
Mr. Sharan Jagtiani a/w. Mr. Rohaan Cama, Ms. Surabhi Agrawal,
Date: 2022.10.03
18:09:14 +0530
Mr. Himanshu Agarwal, Mr. Birrul Mohamedi i/b. Bellatos Legal
Services LLP, for the Plaintiff/Applicant.
Mr. Zal Andhyarujina, Senior Advocate a/w. Ms. Akanksha
Agrawal, Ms. Viloma Shah, Mr. Ativ Patel, Mr. Darshit Dave, Mr.
Harshad Vyas i/b. AVP Partners, for the Defendant.
CORAM : N.J. JAMADAR, J.
RESERVED ON : AUGUST 10, 2022
PRONOUNCED ON : OCTOBER 3, 2022
---------------
JUDGMENT :
1. This commercial division summary suit is instituted to recover a sum of Rs. 39,12,43,595/- along with further interest at the rate of 18% p.a. from the date of dishonour of the cheques which form the basis of the suit.
2. The material averments in the plaint can be stated in brief as under:-
Vishal Parekar, P.A. ...1
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The plaintiff is a limited liability partnership incorporated under the provisions of Limited Liability Partnership Act, 2008. The plaintiff is engaged in the business, inter alia, of development of immovable properties. M/s. Primeland Constructions, the defendant (Primeland) is a partnership firm registered under the Partnership Act, 1932. To the knowledge of the plaintiff, Jayesh Shah, Geeta Shah, Ketan Shah, Sayed Mustafa Javed, Mohammad Afzal Shaikh Faird and Bharat Vijan are the partners of defendant firm. They are engaged in the real estate business.
3. Pursuant to the representation made by the defendant that it had acquired certain rights in respect of immovable property situated at Survey No. 42-A (Part), CTS No. 874-B (Part) and CTS No. 875-D (Part), Borivali, Mumbai (subject land), the plaintiff and the defendant entered into a Joint Development Agreement on 31 st August, 2019 (JDA) whereby the parties agreed to jointly develop a portion of the subject land admeasuring 2500 sq. mtrs. which would generate a minimum FSI of 14000 sq. mtrs. approximately. Under the terms of the agreement, in addition to payment of a sum of Rs. 25 Crores towards security deposit, the plaintiff was required to incur expenditure for the development of the subject land.
Vishal Parekar, P.A. ...2
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4. In performance of its obligations under JDA, the plaintiff spent considerable amount towards development of the subject land. However, the defendant could not perform its promises under JDA. Expressing inability to discharge its obligations under JDA, the defendant undertook to repay to the plaintiff a sum of Rs. 39,12,43,595/- on or before 30th October, 2021 which came to be recorded in a Memorandum of Understanding dated 2 nd August, 2021 (MOU) executed by and between the parties. The said amount of Rs. 39,12,43,595/- was agreed to be paid in accordance with the schedule agreed thereunder. Simultaneously, with the execution of MOU, the defendant issued two cheques drawn for Rs. 10 Crores and the third cheque drawn for Rs. 19,12,43,595/- payable on 15 th September, 2021, 30th September, 2021 and 30th October, 2021 respectively, as per the agreed schedule in the MOU.
5. Upon presentment, the cheques drawn for Rs. 10 Crores and Rs. 19,12,43,595/- were returned unencashed on 17 th September, 2021 and 8th November, 2021, respectively, for insufficiency of funds. Whereas the second cheque drawn for Rs. 10 Crores was returned unpaid with the remarks "payment stopped by drawer". On the instruction of a partner of the defendant, the second cheque was again presented for encashment, but returned unpaid for an Vishal Parekar, P.A. ...3 sjl-15542-2022.doc identical reason on 12th October, 2021. Statutory notices were addressed to the defendant on 19th October, 2021 and 13th November, 2021 calling upon the defendant to pay the amount covered by the dishonored cheques.
6. In response to the notice dated 13th November, 2021 the defendant, vide letter dated 3rd December, 2021, acknowledged the liability to pay the amount mentioned in the MOU. But, expressed its inability to pay the same on account of the then prevailing market conditions. Hence, this suit to recover the amount of Rs. 39,12,43,595/- covered by the dishonoured cheques along with interest @ 18% p.a. from the respective dates of dishonour.
7. Along with the suit, the plaintiff filed an Application for interim reliefs inclusive of an order for attachment before judgment of the property of the defendant firm and its partners.
8. In response to the service of writ of summons, the defendant appeared. Thereupon, the plaintiff took out a Summons for Judgment. The defendant filed an affidavit in reply seeking an unconditional leave to defend the suit.
Vishal Parekar, P.A. ...4
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9. The defendant also filed an affidavit in reply in opposition to the interim relief. To which an affidavit in rejoinder came to be filed on behalf of the plaintiff. As the defendant filed an affidavit in reply seeking leave to defend, the parties were heard on the Summons for Judgment.
10. At the outset, the defendant has assailed the tenability of the suit on the ground that it suffers from the vice of Suggestio Falsi Suppressio Veri and that the JDA and MOU cannot be acted upon as they are not registered, and also inadequately stamped. The defendant further contends that in the light of the issues which arise in the suit, it cannot be tried as a summary suit under the provisions of Order XXXVII of the Code.
11. Without contesting the fact that JDA was executed between the plaintiff and the defendant, the defendant contends that in order to settle the dispute which the defendant had with the owners of the subject land, who had also agreed to sale the larger property to the defendant for a consideration of Rs. 66 Crore, it was in the process of raising the funds. Being fully cognizant of these developments, the plaintiff had agreed to deposit a sum of Rs. 25 Crores with the defendant as a performance guarantee, which was Vishal Parekar, P.A. ...5 sjl-15542-2022.doc to be utilized by the defendant towards consideration to be paid to the original owners. Based on the plaintiff's representation, the defendant executed the consent terms in Suit No. 187 of 2014 in the month of July, 2020.
12. The defendant contends, the plaintiff, however, paid a sum of Rs. 20,39,96,375/- only. Out of this amount, an amount of Rs. 14,55,96,375/- was paid to the defendant and Rs. 5,84,00,000/- was paid to the original owners. The defendant hastens to clarify that the aforesaid amount of Rs. 14,55,96,375/- was neither towards consideration to be paid to the original owners nor the security deposit. According to the defendant, the plaintiff sought time to make the balance payment on one or other pretext, which resulted in delay in execution of the consent terms by the defendant with the original owners. The defendant was given to understand that inter- se disputes arose between the partners of the plaintiff. The defendant was thus constrained to raise funds from other sources to make payment to the original owners.
13. Eventually, post negotiations, only with a view to safeguard the plaintiff's interest in the subject land and in order to keep JDA valid and binding till dispute between the partners of the plaintiff Vishal Parekar, P.A. ...6 sjl-15542-2022.doc were resolved, MOU came to be entered. It was however agreed that the amounts were to be repaid by the defendant only when the defendant was in a position to raise adequate finance on the security of the subject land. According to the defendant, it was, at all times, verbally agreed between the parties that the cheques drawn for Rs. 39,12,43,595/- were not to be presented for encashment until the defendant resolved the issues with original owners and the differences between the partners of the plaintiff were resolved. In breach of this understanding, the plaintiff allegedly presented the cheques for encashment with an ulterior motive and instituted this suit. Therefore, the defendant is entitled to an unconditional leave to defend the suit.
14. I have perused the averments in the plaint, documents annexed thereto, affidavit in support of the Summons for Judgment and affidavit in reply seeking leave to defend. I have also perused the pleadings in the Interim Application.
15. I have heard Mr. Sharan Jagtiani learned Senior counsel for the Plaintiff and Mr. Zal Andhyarujina, learned Senior counsel for the defendant at length.
Vishal Parekar, P.A. ...7
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16. Mr. Jagtiani, learned counsel for the plaintiff, submitted that the jural relationship between the parties, as borne out by JDA, is indisputable. The facts that the defendant could not perform its obligation under the JDA and eventually sought to repay the amount which the plaintiff had deposited, and also compensate the plaintiff, by agreeing to pay a sum of Rs. 39,12,43,595/- is clearly acknowledged in the MOU, the execution of which is not at all disputed. These twin facts, coupled with the dishonour of the cheques, drawn by the defendant, in accordance with the terms of MOU, render the plaintiff's claim impregnable. The defences sought to be raised by the defendant are not only vexatious but malafide. Therefore, a decree must follow, submitted Mr. Jagtiani.
17. Mr. Zal Andhyarujina, the learned senior counsel for the defendant assailed the tenability of the suit for non compliance of mandatory pre-institution mediation under section 12A of the Commercial Courts Act, 2015. Taking the Court through the sequence of events especially the time lag between the issue of the legal notices dated 19th October, 2021 and 30th November, 2021, post dishonour of the cheques, and the institution of the suit i.e. 20 th March, 2020, Mr. Andhyarujina would urge that no urgency can be said to have been made out by any stretch of imagination. In this Vishal Parekar, P.A. ...8 sjl-15542-2022.doc view of the matter, according to Mr. Andhyarujina, filing of Interim Application seeking reliefs in the nature of attachment before judgment in a suit which is purely a money claim, can not bring the plaintiff's case within the exception carved out by section 12A of the Commercial Courts Act, 2015, namely a suit wherein an urgent interim relief is contemplated. To add to this, according to Mr. Andhyarujina, no case for grant of interim relief has been pleaded much less established. Therefore, the interdict contained in section 12A operates with full force and vigour. Since pre-institution mediation is held to be mandatory by a Division Bench of this Court in the case of Deepak Raheja vs. Ganga Taro Vazirani 1 the suit does not deserve to be entertained, urged Mr. Andhyarujina.
18. Mr. Andhyarujinia further submitted that the Interim Application for attachment before judgment is otherwise misconceived. The plaintiff has prayed for restraint against and/or attachment of the property of the partners of the defendant firm. Under the provisions of Order XXXVIII of the Code, it is only the property of the defendant which can be attached before judgment. On this count alone, the Interim Application becomes untenable and, consequently, the suit cannot be entertained as the bar under section 12A of the Act, 2015 operates.
1 (2021) 6 Bom CR 115.
Vishal Parekar, P.A. ...9
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19. On merits, Mr. Andhyarujina would urge that the claim of the plaintiff that the defendant admitted the liability to pay the amount mentioned in the MOU, is not borne out by the reply of the defendant dated 3rd December, 2021. In fact, the said response cannot be construed as a reply on the merits of the plaintiff's claim. It was in the nature of a counter proposal to fix a meeting and explore the possibility of resolution of the dispute. The contents of the reply, therefore, cannot be construed as spelling out an admission of the liability as is sought to be urged on behalf of the defendant. Lastly, Mr. Andhyarujina, would submit that the fact that the plaintiff had failed to pay the entire sum of Rs. 25 Crores, and the consequences it entailed on the settlement of the dispute by the defendant with the original owners, raise issues which warrant trial. Likewise, the defence of the defendant that there was an understanding between the parties that the cheqeus were not to be presented, without consulting the defendant, cannot be said to be a frivolous or vexatious defence. In the circumstances, according to Mr. Andhyarujina, the defendant has made out a fair and bonafide defence warranting an unconditional leave to defend the suit.
20. To begin with the challenge to the tenability of the suit on the count of failure to resort to mandatory pre-institution mediation Vishal Parekar, P.A. ...10 sjl-15542-2022.doc under section 12A of the Commercial Courts Act, 2015. Mr. Andhyarujina premised his submission on the strength of the declaration of law by this Court in the case of Deepak Raheja (supra) holding pre-institution mediation to be mandatory.
21. After the conclusion of the submissions, the controversy as regards the mandatory or declaratory nature of the prescription under section 12A of the Commercial Courts Act, 2015 was set at rest by the Supreme Court in the case of M/s. Patil Automation Private Ltd. and Ors. vs. Rakheja Engineers Private Ltd.2 as under:-
84] "Having regard to all these circumstances, we would dispose of the matters in the following manner. We declare that section 12A of the Act is mandatory and hold that any suit instituted violating the mandate of section 12A must be visited with rejection of the plaint under Order VII Rule 11. This power can be exercised even suo moto by the Court as explained earlier in the judgment. We, however, make this declaration effective from 20.08.2022 so that concerned stakeholders effective from 20.08.2022 so that concerned stakeholders become sufficiently informed. Still further, we however direct that in case plaintiffs have been already rejected and no steps have been taken within the period of limitation, the matter cannot be reopened on the basis of this declaration. Still further, if the order of rejection of the plaint has been acted upon by filing a fresh suit, the declaration or prospective effect will not avail the plaintiff. Finally, if the plaint is filed violating section 12A after the jurisdictional High Court has declared section 12A mandatory also, the plaintiff will not be entitled to the relief."
22. Since the instant suit has been instituted on 30 th March, 2022 2 SLP (C) No. 14697 of 2021, Supreme Court. Vishal Parekar, P.A. ...11 sjl-15542-2022.doc i.e. post declaration of law by this Court in the case of Deepak Raheja (supra) that section 12A is mandatory, the benefit of prospective declaration may not be available to the plaintiff in view of the declaration in the ultimate part of the aforesaid paragraph that if the plaint is filed violating section 12A of the Act, 2015 after the jurisdictional High Court has declared section 12A mandatory, the plaintiff will not be entitled to the relief.
23. The issue which crops up for consideration in this case is whether the fact that the suit came to be instituted along with an application seeking urgent interim relief would render the interdict against the institution of the suit, without mandatory pre- institution mediation, under section 12A inoperative. A two-fold submission was canvassed by Mr. Andhyarujina. First, there are no pleadings in the plaint which would show that the suit contemplated an urgent interim relief. Second, the lapse of time from the date of the dishonour of the cheques till the application was moved for ad- interim relief, would militate against the claim of urgency. Mr. Andhyarujina took the Court through the averments in the plaint and the interim application to bolster up the aforesaid submissions.
24. In opposition, Mr. Jagtiani submitted that since the defendant Vishal Parekar, P.A. ...12 sjl-15542-2022.doc filed an affidavit seeking leave to defend the suit and consequent thereto, Summons for Judgment came to be posted for hearing, at this stage, the defendant cannot turn around and again raise the ground of bar contained in section 12A of the Act, 2015. In any event, according to Mr. Jagtiani, there are more than adequate pleadings to demonstrate the necessity of urgent interim reliefs.
25. In the light of the view which this Court is persuaded to take, it may not be necessary to delve deep into this aspect of the matter. In the application, there are averments to the effect that the defendant and its sister concern have allegedly duped many investors and flat purchasers and there are orders of this Court which have recorded the unscrupulous acts and conduct of the partners of defendant and its sister concern. It was specifically asserted that one of the partners Mr. Jayesh Shah was arrested by the police for allegedly duping home buyers and another partner Mr. Ketan Shah has been absconding. Copies of the orders passed by this Court in Writ Petition No. 2159 of 2021 regarding the conduct of the partners of Ravi Developers LLP, a sister concern of the defendant, were pressed into service to lend support to the aforesaid claim. In the affidavit in rejoinder, the plaintiff has specifically averred that Mr. Jayesh Shah, who was out on bail, has Vishal Parekar, P.A. ...13 sjl-15542-2022.doc been again arrested by police (EOW).
26. I deem it superfluous to delve into the issue as to whether the Court should embark upon an inquiry as to whether the suit genuinely and bonafide contemplates an urgent interim relief, despite there being an application for interim relief, so as to take the suit out of the purview of section 12A of the Act, 2015. In the case at hand, the aforesaid material, in support of the application for the interim relief, in my view, is adequate enough to show that the application for interim relief is neither malafide nor a mere litigative strategy to overcome the rigor of section 12A of the Act, 2015.
27. Since the Court has proceeded to deal with the substantive issue of grant or otherwise of leave to defend the suit and in view of the ultimate order, which the Court is inclined to pass, it may not be necessary to examine the justifiability of the prayers in the interim application.
28. This propels me to the core issue of grant of leave to defend. Few facts are incontrovertible. Firstly, execution of the JDA on 31 st August, 2019 between the plaintiff and the defendant to develop the Vishal Parekar, P.A. ...14 sjl-15542-2022.doc subject land on the terms and conditions incorporated therein, is not in dispute. In the context of the controversy between the parties, the fact that the plaintiff had agreed to deposit with the defendant by way of interest-free security deposit a sum of Rs. 25 Crores as performance guarantee in respect of the proposed building to be constructed on the subject land, is also incontestable. By and large, the payment of a sum of Rs. 20,89,25,064/- by the plaintiff to the defendant as of the date of the execution of the MOU i.e. 2nd August, 2021 is also not in contest, though the defendant has made an endevour to put in contest the components towards which the said amount was paid. Likewise, though the parties are at issue over the circumstances which necessitated the execution of the MOU and the party who was at fault leading to cancellation of JDA, the execution of the MOU on 2nd August, 2021 is an admitted fact. Issue and dishonour of the cheques aggregating to the sum of Rs.39,12,43,595/- are also not in dispute.
29. What the defendant principally alleges is existence of a contemporaneous oral understanding between the parties that the JDA would be kept alive till the defendant resolved the dispute with the original owner, that the cheques would not be presented for encashment and post resolution of the dispute the defendant would Vishal Parekar, P.A. ...15 sjl-15542-2022.doc repay the amount provided it was in a position to raise the finance against the subject land. Whether fairness, reasonability and bonafide of this defence are borne out by the material on record and the attendant circumstances ?
30. For an answer, it would be expedient to note the relevant clauses of MOU dated 2nd August, 2021 A) The parties have entered into a Development Agreement dated 31.08.2019 (hereinafter referred to as "the said Development Agreement" which has been executed between "The Vendor and "The Developer", a copy of which is enclosed herewith as Annexure A. B) The Vendor is well and sufficiently entitled to the property bearing Survey No. 42-A(part), CTS No. 874-B, Part and CTS No. 874-D (part) in aggregate admeasuring 1,10,562 square meters of village Poisar, Talukar Borivali, Mumbai suburban district, within the registration district of Mumbai suburban (hereinafter referred to as "the said property/project"). ....... ..... ......
E) Pursuant to the request of The Vendor; The Developer agreed to develop and complete said property/project jointly and both the parties mutually agreed to enter into a definitive agreement in the manner and subject to the terms and conditions as stated in the said Development Agreement dated 31.08.2019.
....... ..... ......
H) The Developer has paid Rs. 20,89,25,064/- till date to the Vendor for the joint development of the said property, project and the same have been acknowledged by the vendor as well.
Vishal Parekar, P.A. ...16
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I) Now due to some unavoidable internal
circumstances faced by The Vendor, the said the Vendor is unable to complete and fulfill the compliance and commitments made by them as stated in the said Development Agreement and therefore, they are not in a state to execute the joint development of the said property/project. J) In view of the said unavoidable internal circumstance, the vendor has requested the Developer to cancel and terminate the said Development Agreement and has agreed to compensate the Developer, for the hardships faced and the time and finance invested by them for the joint development, in the following manner:
a) Rs. 10,00,00,000/- on or before 15.09.2021.
b) Rs. 10,00,00,000/- on or before 30.09.2021.
c) Rs. 19,12,43,595/- on or before 30.10.2021.
K) The Developer has agreed the same and both the parties have mutually agreed to enter into this MOU to record the terms and conditions. It is duly noted that only upon the complete payment of the compensation amount payable by the Vendor to the Developer as stated above, will both the parties enter into a Deed of Cancellation.
....... ..... ......
Now it is agreed and declared by the parties hereto that:
1) In view of the circumstance recited above, the parties hereto do by mutual consent hereby enter into this MOU. Till the terms and conditions of this MOU are fulfilled, the said Development Agreement dated 31.08.2019 is in effect and all rights, title, interest, demands etc. of the Developer under and by virtue of the purported Development Agreement are intact.
2) Accordingly, the Vendor agrees to compensate the Developer a total sum of Rs.
39,12,43,595/- towards the hardships faced and the money and time invested by the Developer, as stipulated in the terms and conditions as Vishal Parekar, P.A. ...17 sjl-15542-2022.doc mentioned in the said Development Agreement.
3) If there is any default or delay in the payment of the compensation amount as per the timeline as stated above, then the Vendor is liable to compensation the Developer by paying an interest @ 36%, compounded monthly over and above the amounts as mentioned in this MOU.
4) The Vendor hereby undertake not to create third party claim, right, or liability on the said property/project until and unless the entire agreed upon compensation amount as mentioned in this MOU has been paid to the Developer and both parties have executed the Deed of Cancellation.
....... ..... ......
9) The recitals referred above shall form the integral part of this Deed of Cancellation.
31. On a fair reading of the aforesaid clauses and covenants in the MOU, it becomes abundantly clear that the parties agreed to cancel the JDA on account of inability of the defendant to complete and fulfill its obligation under the JDA apparently due to some unavoidable internal circumstances and, therefore, pursuant to the request of the defendant the plaintiff agreed to cancel and terminate the JDA and the defendant, in turn, agreed to compensate the plaintiff for the hardship faced and the time and finance invested by the plaintiff for the joint development, by paying a sum of Rs. 39,12,43,595/- as per schedule provided therein. Upon payment of the amount, as agreed, the parties agreed Vishal Parekar, P.A. ...18 sjl-15542-2022.doc to enter into a Deed of Cancellation. In the event of default, the defendant agreed to pay further interest @ 36% p.a. compounded monthly, over and above the amount specified in the MOU. It was further agreed that the defendant would not create any third party right in the subject land till the said amount of compensation was paid and Deed of Cancellation executed.
32. It would be apposite to immediately notice the response of the defendant in the wake of the demand by the plaintiff of the aforesaid amount, consequent to dishonour of the cheque. Since the import of the reply dated 3rd December, 2021 was sought to be construed to suit the case of the respective parties, it may be advantageous to extract the relevant part of the said reply.
".... Further we would like to request you to revert on the Mira Road proposal which was offered/ proposed by our sister concern company i.e. M/s. Ravi Developments to you as we are unable to repay you the amount mentioned in the said MOU due to present market condition, we are facing difficulty to comply with the terms and conditions of the said MOU on immediate basis and we want to maintain a cordial relation with you. Thus, we would like to request to you to fix a meeting and will try to resolve the queries if any in respect of the Mira Road Proposal proposed to you as we are willing to repay you the aforesaid amount mentioned in the said MOU."
33. Mr. Jagtiani would urge that the aforesaid contents constitute an admission of the liability in the no uncertain terms. On the one Vishal Parekar, P.A. ...19 sjl-15542-2022.doc hand, there is clear acknowledgment of the liability to make the payment, as agreed, under MOU. On the other hand, no counter version, as is now sought to be urged, regarding the consequences of the execution of the MOU or contemporaneous verbal agreement which the defendant is now pressing into service, was adverted to in the said reply. In contrast, the defendant admitted in unequivocal terms that it was willing to pay the amount mentioned in the MOU but for the market conditions.
34. In opposition to this, Mr. Andhyarujina attempted to salvage the position by canvassing a submission that the reply dated 3rd December, 2021 was in the nature of a counter proposal. Since the defendant did not delve into the merits of the claim and made an earnest endevour to negotiate and settle the matter amicably, the aforesaid contents cannot be read as an admission of liability.
35. I find it rather difficult to accede to the submissions of Mr. Andhyarujina. First and foremost, the admission of liability to pay the amount mentioned in the MOU is in clear and explicit terms. It is also unqualified. The defendant professed to ascribe a cause for its inability to pay the amount but did not contest the liability to pay. The aforesaid response of the defendant cannot be said to be in-
Vishal Parekar, P.A. ...20
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consequential or immaterial. Had the facts been such as are now sought to be contended by the defendant, the later would not have missed to state the same at the first opportunity. Mr. Jagtiani was thus justified in canvassing a submission that the reply dated 3 rd December, 2021 further re-enforces the plaintiff's case and impairs the nature and quality of the defence sought to be urged on behalf of the defendant.
36. The aforesaid factor is required to be considered in conjunction with an indisputable position that the plaintiff had parted with a sum of Rs. 26,89,25,064/-. If it was the case of the defendant that the JDA could not be given effect to on account of the plaintiff's failure to pay the balance amount out of the total amount of Rs. 25 Crore, it would have found expression in the said reply, if not, in the MOU which in terms records that, it was the defendant who was unable to complete and fulfill the obligations under the JDA.
37. The fact that the liability under the MOU stood fortified by the issue and dishonour of the cheques cannot be lost sight of. There is no material to indicate that at any point of time till filing of the affidavit in reply, the defendant raised the issue that there was a Vishal Parekar, P.A. ...21 sjl-15542-2022.doc contemporaneous agreement not to present the cheques for encashment.
38. Reliance by Mr. Jagtiani on a Division Bench judgment of this Court in the case of Rajesh Laxmichand Udeshi @ Bhatia vs. Pravin Hiralal Shah3 wherein the Court adverted to the effect of the statutory presumption under the Negotiable Instruments Act, 1881, while considering the prayer for leave to defend the suit based on negotiable instrument, appear to be well founded. The observations of the Division Bench in paragraphs 14 to 17 and 19 of the said judgment are relevant in the context of the defence of inadequate stamp duty as well. They read as under:-
14] When a summary suit instituted is based on a cheque which is dishonoured, effect of Sections 138 and 139 of Negotiable Instruments Act raising statutory presumption that the cheque was issued in discharge of a liability, is a relevant consideration to be kept in mind. The said Sections cast a burden upon the defendant to rebut the presumption. Summary suits instituted on cheques which are dishonoured will, therefore, stand on a higher footing than summary suits instituted on the basis of other documents. In such cases, the Court will have to take into consideration the statutory presumption which is raised when the cheques are dishonoured. The object behind providing a statutory presumption under the Negotiable Instruments Act has to be kept in mind while judging the credibility of a defence raised by the defendant in summary suit. Thus, the test of more than "shadowy" and less than "probable"
3 (2013) 2 AIR Bom R 1146.
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as adverted to by the Apex Court cannot apply in cases where the law requires a person to explain certain state of affairs. The judgments which are relied upon by the learned counsel do not consider the effect of the statutory presumptions raised under the Negotiable Instruments Act when a cheque is dishonoured.
In our opinion, when a cheque is dishonoured, the Court is enjoined with the duty to scrutinize the defence put up by the defendant with a much higher degree of care and circumspection. Such summary suits cannot be treated as on par with the cases instituted on contracts or invoices etc. where such statutory presumptions do not operate.
15] The legislative intent behind enactment of Sections 138 and 139 of the Negotiable Instruments Act is to prevent abuse of the banking system. Thus, one who issues a cheque extends a solemn promise to pay. Based on this promise and action, the recipients arrange their affairs and quite often enter into further transactions. Unless extra ordinary circumstances are made out, one who issues cheque is deemed to have undertaken to pay.
Negotiable Instruments Act enforces the promise strictly by raising statutory presumption and treating it as an offence. This provision elevates a cheque to a higher status than the other instruments, such as written contract etc. to which no such statutory presumption is attached. What needs to be emphasized is that presumption in respect of a dishonoured cheque places a higher burden on the defendant to elucidate the defence than the burden which is cast on a defendant where the suit is filed on the basis of ordinary instruments. In the cases based on dishonour of cheques, the defendant must satisfy the conscience of the Court and cannot take shelter behind the rules formulated primarily in respect of suits based on ordinary instruments. The Court while exercising the discretion to grant leave or otherwise to the defendant in such cases cannot be oblivious of the legislative intent to place the promise made through a cheque on a higher pedestal than the promise Vishal Parekar, P.A. ...23 sjl-15542-2022.doc made through an ordinary instrument. This is not to state that moment a Summary Suit is lodged based on a dishonoured cheque, it must be decreed without anything more. What needs to be emphasised is that the fact that there is a statutory presumption attached to the dishonoured cheque will constitute an important ingredient while considering the question whether leave to defend should be granted in cases of dishonoured cheques and the Court must scrutinise the defence strictly. The object of the summary procedure is ultimately to see that the defendant does not needlessly prolong the litigation by creating untenable, frivolous and casual defences so as to deprive the plaintiff of the monies due to him. 16] The distinction regarding suits based on dishonoured cheques is also indicated by the Apex Court in V.K.Enterprises and anr. v/s. Shiva Steels, (2010) 9 SCC 256, wherein the Apex Court has held as under:
10. Order 37 CPC has been included in the Code of Civil Procedure in order to allow a person, who has a clear and undisputed claim in respect of any monetary dues, to recover the dues quickly by a summary procedure instead of taking the long route of a regular suit. The courts have consistently held that if the affidavit filed by the defendant discloses a triable issue that is at least plausible, leave should be granted, but when the defence raised appears to be moonshine and sham, unconditional leave to defend cannot be granted.
11. What is required to be examined for grant of leave is whether the defence taken in the application under Order 37 Rule 3 CPC makes out a case, which if established, would be a plausible defence in a regular suit. In matters relating to dishonour of cheques, the aforesaid principle becomes more relevant as the cheques are issued normally for liquidation of dues which are admitted. In the instant case, the defence would have been plausible had it not been for the fact that the allegations relating to the interpretation of the cheque is without substance and the ledger accounts relating to Vishal Parekar, P.A. ...24 sjl-15542-2022.doc the dues, clearly demonstrated that such dues had been settled between the parties. Moreover, the issuance of the cheque had never been disputed on behalf of the petitioner whose case was that the same had been given on account of security and not for presentation, but an attempt had been made to misuse the same by dishonest means. (emphasis supplied).
17] Keeping the above position in mind, we have considered the defence raised by the appellant before the learned single Judge. The only defence that is raised by the appellant in this regard is that the cheques were given as security for "some other transaction". The appellant was obliged to give some particulars as to the "some other transaction". No such explanation is forthcoming. Thus, considering the quality of defence, the learned single Judge has come to the conclusion that this is a case of "no defence". We are in agreement with this view. When the cheques were dishonoured and presumption was raised and the appellant wanted the Court to believe that he has a defence, in as much as, the cheques were issued as a security for some other transaction, least he could have done was to give some details of such transaction. The appellant cannot treat the legislative intent behind the statutory presumptions lightly and then try to rely upon the principles enunciated in cases where no such statutory presumption is raised......... .............
19] Since the suit is based upon the dishonoured cheques, as amply borne out by para 20 of the plaint, quoted hereinabove, the defence of insufficient stamp on MOU is of no consequence. Reference to MOU in the plaint is only for the purpose of giving factual background in which the cheques were issued and the consideration for the same. That would, however, not shift the burden, of proving that the cheques were issued without consideration, cast by the law on the drawee of the cheque from the drawer to the payee of the cheque. 21. In view of the above discussion, we are of the view that the learned single Judge was fully Vishal Parekar, P.A. ...25 sjl-15542-2022.doc justified in giving the finding that the amounts which were paid by the plaintiff to the defendant were received by the defendant and that the defence raised by the appellant/defendant that the dishonoured cheques were issued in respect of some other transaction was not a bonafide defence. The cheques were issued by the defendant in discharge of his liability and presumption under Section 139 of the Negotiable Instruments Act, 1881 is clearly available to the plaintiff. No credible defence has been urged by the appellant/defendant in his affidavit-in-reply, which would entitle him to get leave to defend, much less unconditional leave to defend.
(emphasis supplied)
39. In view of the aforesaid exposition of law, the endevour on the part of the defendant to seek an unconditional leave to defend the suit by pressing into service a contemporaneous verbal agreement does not merit countenance. The suit is primary based on the dishonoured cheques. MOU evidences the underlying transaction between the parties.
40. The situation which thus obtains is that, indubitably a sum of Rs. 20,89,25,064/- was paid by the plaintiff to the defendant. Purportedly, on account of default on the part of the defendant to perform its obligations under JDA, the defendant agreed to pay a sum of Rs. 39,12,43,595/- by 30th October, 2021. Clause (J) and the second covenant of MOU, extracted above, clearly spell out the Vishal Parekar, P.A. ...26 sjl-15542-2022.doc purpose for which the said amount was agreed to be paid. It was to compensate the plaintiff towards the hardship faced and the money and time invested by the plaintiff in accordance with the terms of the JDA. The said stipulation is clearly in the nature of damages. The amount over and above the sum of Rs. 20,89,25,064/- deposited by the plaintiff with the defendant, represents the compensation for the time value of the money invested, acts performed and hardship faced by the plaintiff. This brings in the element of measure of damages.
41. In the event of a breach of contract under section 73 of the Indian Contract Act, 1872, the party who suffers damage on account of the breach of contract is entitled to receive compensation for any loss or damage caused to him, which the parties knew when they entered into the contract to be likely to result from the breach thereof. Section 73 is required to be read in conjunction with section 74 of the Contract Act which deals with a situation where a sum is named in the contract as the amount to be paid in case of such breach or any other stipulation by way of penalty. The party complaining of the breach is entitled to receive from the party who has broken the contract reasonable compensation not exceeding the amount so named or the penalty Vishal Parekar, P.A. ...27 sjl-15542-2022.doc stipulated. It is imperative to note that section 74 emphasizes that in case of breach of contract, the party complaining of breach is entitled to receive reasonable compensation whether or not any loss is proved to have been caused by such breach. The entitlement for a reasonable compensation is thus underscored. If the compensation named in the contract is in the nature of penalty, a party is entitled to reasonable compensation for the loss suffered. On the contrary, if the compensation named in the contract appears to be a genuine pre-estimate of loss which was in the contemplation of the parties while entering into the contract, proof of loss or damage is not peremptory. The party complaining of breach would then be justified in claiming the sum so named.
42. A useful reference in this context can be made to a judgment of the Supreme Court in the case of Oil & Natural Gas Corporation Ltd. vs. Saw Pipes Limited4 wherein the principles which govern the award of damages in case of breach of contract were culled out as under:-
68. From the aforesaid discussions, it can be held that:-
(1) Terms of the contract are required to be taken into consideration before arriving at the conclusion whether the party claiming damages is entitled to the same;
(2) If the terms are clear and unambiguous 4 (2003) 5 Supreme Court Cases 705.
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stipulating the liquidated damages in case of the breach of the contract unless it is held that such estimate of damages/compensation is unreasonable or is by way of penalty, party who has committed the breach is required to pay such compensation and that is what is provided in Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and, therefore, in every case of breach of contract, the person aggrieved by the breach is not required to prove actual loss or damage suffered by him before he can claim a decree. The Court is competent to award reasonable compensation in case of breach even if no actual damage is proved to have been suffered in consequences of the breach of a contract.
(4) In some contracts, it would be impossible for the Court to assess the compensation arising from breach and if the compensation contemplated is not by way of penalty or unreasonable, Court can award the same if it is genuine pre-estimate by the parties as the measure of reasonable compensation.
43. The JDA was executed on 31 st August, 2019. MOU came to be executed nearly two years thereafter, on 2nd August, 2021. The question as to whether the sum of Rs. 18,23,18,531/- which is the difference between the amount paid by the plaintiff to the defendant and the amount which the defendant agreed to refund to the plaintiff, is a genuine pre-estimate of the loss which was in the contemplation of the parties or it partakes the character of penalty, in my view, raises a triable issue.
44. Undoubtedly, in a commercial contract, the parties are free to determine the terms of the agreement. However, in the case at Vishal Parekar, P.A. ...29 sjl-15542-2022.doc hand, the amount agreed to be paid by the defendant to the plaintiff is expressly stated to be by way of compensation. Thus, the issue of reasonableness of the compensation comes to the fore.
45. Nonetheless, since the defendant has admitted the receipt of the amount of Rs. 20,89,25,064/-, the proposition 17.6 in the judgment of the Supreme Court in the case of IDBI Trusteeship Services Limited vs. Hubtown Limited5 governs the case at hand and the defendant cannot be granted leave to defend the suit unless the said amount is deposited. In fact, on the basis of reply dated 3 rd December, 2021, it could be legitimately urged that the liability to repay the amount mentioned in the MOU, in the whole, is admitted.
46. Since I am persuaded to take a view that the question of entitlement to compensation, as quantified, warrants trial, it would be expedient to grant leave to defend the suit on the condition of deposit of the said amount of Rs. 20,89,25,064/- and a further sum of Rs. 10 Crores, to account for compensation and/or interest, as the suit is based on dishonored cheques for which interest becomes payable @ 18% p.a. from the date the instrument ought to have been honoured, under section 80 of the Negotiable Instruments Act, 1881.
5 (2017) 1 Supreme Court Cases 568.
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47. The aforesaid conditional leave to defend the suit, subject to deposit of the aforesaid amount, in my view, adequately protects the interest of the plaintiff. Therefore, no separate order is required to be passed in the Interim Application and, consequently, I am inclined to dispose of the Interim Application.
Hence, the following order:
ORDER a] Leave to defend the suit is granted to the defendant subject to deposit of a sum of Rs.30,89,25,064/- (Thirty Crores Eighty Nine Lakhs Twenty Five Thousand and Sixty Four) in the Court within a period of six weeks from today.
b] If the aforesaid deposit is made within the stipulated period, this suit shall be transferred to the list of Commercial Causes and the defendant shall file written statement within a period of thirty days from the date of deposit.
c] If this conditional order of deposit is not complied with, within the aforesaid period, the plaintiff shall be entitled to apply for an ex-parte decree against the defendant after obtaining a Non-Deposit Certificate from the Prothonotary and Senior Master of this Court.
d] Summons for Judgment stands disposed of accordingly.
e] The Interim Application also stands disposed.
(N. J. JAMADAR, J.)
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