Bombay High Court
Wind World (India) Ltd. And Anr vs En Renewable Energy Pvt. Ltd. And 3 Ors on 3 December, 2018
Author: K. R. Shriram
Bench: K. R. Shriram
sr.2.238.2017.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
ITS COMMERCIAL DIVISION
CHAMBER SUMMONS NO.238 OF 2017
IN
COMMERCIAL SUIT NO.545 OF 2017
Brookfield Asset Management Inc. ... Applicant/Orig.def.no.4
In the matter between
Wind World (India) Ltd. and anr. ... Plaintiffs
V/s.
En renewable Energy Pvt. Ltd. & ors. ... Defendants
...
Mr.Dinyar Madon, Senior Advocate a/w Mr.Yashesh Kamdar, Mr.Sachin
Chandarana and Mr.Vivek Dwivedi i/b. M/s.Manilal Kher Ambalal and
Co. for plaintiffs.
Mr.Rahul Narichania, Senior Advocate a/w Mr.Siddharth Ranade and
Mr.Pallav Shukla i/b. Trilegal for defendant no.3 / Applicant in
CHSCD/238/2017.
...
CORAM : K. R. SHRIRAM, J.
DATE : 3rd DECEMBER, 2018. P.C. :
1. This chamber summons is taken out for and on behalf of defendant no.3 for rejection of plaint under Order 7 Rule 11(a) and also Order 1 Rule 10. The submissions were made only with regard to Order 7 Rule 11(a)- non-disclosure of cause of action.
2. With the assistance of counsel for defendant no.3, the averments, so far as defendant no.3 is concerned, from the plaint has been culled out and the same is read as under :
"5. .............Defendant No. 3 is a part of the Terraform Global Group to whom the ownership of the Defendant No. 1 was transferred somewhere in 2016 and owns and operated clean energy vina k. 1/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc power plant.................
38. However, on 13th April, Plaintiff No. 1...............learnt that the management of Defendant No. 1 had changed hands once again. Defendant No. 2 had transferred its ownership in the Defendant No. 1 in favour of Defendant No. 3.........The Plaintiffs now verily believe, relying on an announcement made on 7 th March 2017, that Defendant No. 3 has also sold its stake in Defendant No. 1 Company to Defendant No. 4. This is also done without the knowledge or consent of Plaintiff No. 1
39. A press release in the Live Mint of 10th January 2017 is annexed hereto and marked as Exhibit X, which shows that Defendant No. 2 had sold its stake in Defendant No. 1 Company to Defendant No. 3. ...............While conducting an online search, Plaintiff No. 1 also found that as late as 7th March 2017, Defendant No. 3 had announced on its own website the sale of its ownership in all its assets which would obviously also include its stake in the Defendant No. 1 to Defendant No. 4. The arrangement as per the new release posted by Defendant No. 3 provides for acquisition of Defendant No. 3 by Defendant No. 4. The copy of the said news release is annexed hereto and marked as Exhibit Y. The auditor's report for the year 2015-16 would also reveal that Defendant No. 3 has defaulted in meeting several of its liabilities. The several weaknesses pointed out in the Auditor's Report, as highlighted above, establish the Plaintiffs apprehension that Defendant No. 3 did not have the necessary knowledge or expertise required to comprehend the needs of the Wind Power business in India.
45.The Plaintiffs state that as on date the Plaintiffs are entitled to receive a sum of Rs. 257.64 lakhs towards outstanding dues (for operation, maintenance and SCADA) and interest on delayed payments by the Defendant No. 1. A chart summarising the same is annexed hereto and marked as Exhibit Z. Despite the same, Plaintiff No. 1 continued and continued to provide operation and maintenance services to Defendant No. 1 without having realised the intention of Defendant No. 1 having suppressed vital information and also allegedly terminating the contract so that a clean sale of entities is possible from Terraform Global to Defendant No. 4.
46. The Plaintiffs submit that the change of ownership which amounts to a transfer and assignment of the rights and obligations of Defendant No. 1 under the agreements, is specifically prohibited under clause 1.7 of the Turnkey Agreement, clause 1.3 of the OC and clause 1.3 of the MC. A violation of such clauses constitute a material breach of the terms of the agreements. In fact, the Plaintiffs believe that such change in ownership is one of the primary causes for the issues that have vina k. 2/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc arisen between the parties. The negative covenant to transfer or assign the contracts or the rights and liabilities thereunder is based on material representations made by the parties including but not limited to the financial health of the Company and the expertise in a particular field of operation. A breach of such clause therefore, would vest the innocent party with an absolute right to terminate the agreement and claim compensation for the consequential losses.
60. Therefore, the Plaintiffs submit that, in the alternative to the aforementioned declaration, they are entitled to an order and decree directing the Defendants, both jointly and severally, to pay Plaintiff No. 1 the sum of Rs. 121.4862 Crores (as per particulars of claim Exhibit BB hereto) together with further interest thereon at the rate of 18% p.a. compounded every quarter from the date of filing of the suit till payment and/or realisation."
3 Mr.Narichania appearing for defendant no.3 submitted that the plaint, therefore, does not disclose cause of action against defendant no.3, and hence has to be rejected. Mr.Narichania submitted that even in paragraph 45 plaintiffs do not refer to defendant no.3 but cleverly state parties thereby implying defendant no.3 also, but defendant no.3 is not party to any agreement with plaintiffs. The agreements referred in the said paragraph are only with defendant no.1. I am in agreement with Mr.Narichania.
4. Mr. Narichania also referred to paragraph 67 of the plaint, which read as under:
"67. The Operation Contract dated 30th June 2010 is executed in Mumbai on the stamp paper of Maharashtra. The Maintenance Contract dated 30th June 2010 is also executed in Mumbai on the stamp paper of Maharashtra. All other contracts in question have been negotiated and executed in Mumbai. The alleged default notices dated 3rd March 2017 and termination notices dated 10 th April 2017 and 13th April 2017 have been received by Plaintiff No. 1 at Mumbai. Plaintiff No. 1 has responded thereto from and at Mumbai. The Plaintiffs received payments under the agreements, vina k. 3/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc though delayed by the Defendant No. 1, at Mumbai. A material part of cause of action has arisen in Mumbai. However, as the project site is in Karnataka, this Hon'ble Court will have jurisdiction to entertain and try the present suit with leave obtained under Clause XII of the Letters Patent from this Hon'ble Court."
Mr.Narichania submits that the Operation Contract, Maintenance Contract or any other contract referred to are between plaintiffs and defendant no.1. Defendant no.3 is not at all involved. Even the termination notice is issued by defendant no.1 and payments, if any, have been made by defendant no.1. Therefore even the averments of plaintiffs in this paragraph 66 also indicate cause of action disclosed only against defendant no.1.
5. Mr. Madan appearing for plaintiffs submitted that :
a. the plaint discloses cause of action. b. the Court in any event cannot reject the plaint partly, and if at
all, the plaint as whole alone can be rejected under Order 7 Rule 11. So on an application of one defendant, the plaint cannot be rejected.
c. at the time of hearing an application under Order 7 Rule 11, the Court cannot go into issues as to whether cause of action as disclosed is weak and not likely to be succeed.
6. Mr.Madan relied upon paragraphs 20, 38, 47, and 50 of the plaint, apart from paragraphs Mr.Narichania pointed out to submit that vina k. 4/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc the plaint discloses cause of action against defendant no.3.
7. For the second proposition that the plaint cannot be rejected against one defendant but can be only as a whole, Mr. Madan relied upon the judgment of the Apex Court in the case of Sejal Glass Limited Vs. Navilan Merchants Private Limited 1. For the third point that Court cannot at the hearing of an under Order 7 Rule 11 go into chance of success of a cause of action, Mr.Madan relied upon the judgment of Apex Court in the case of Liverpool & London S.P. & I Association Ltd. Vs. M.V. Sea Success I and another2
8. Going in reverse order, there cannot be any doubt that at the time of hearing of an application under Order 7 Rule 11, the Court cannot reject a plaint on the ground that averments in the plaint are not sufficient to prove the facts stated therein for the purpose of obtaining reliefs claimed in the suit. So long as claim discloses some cause of action or raises some questions fit to be decided by a Judge, the mere fact that the case is weak and not likely to succeed is no ground for striking it out. What is required to be seen is whether the averments disclose a cause of action or a triable issue as such.
In my view, the plaint does not disclose any cause of action against defendant no.3. The plaint cannot be read in bits and pieces and when read as a whole plaint, the entire cause of action disclosed is only 1 (2018) 11 Supreme Court Cases 780 2 (2004) 9 Supreme Court Cases 512 vina k. 5/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc against defendant no.1 and not against any other defendant.
9. Mr.Madan submitted that the claim in the suit against defendants other than defendant no.1, was in tort. Mr. Madan submitted that the word "tort" has not found a mention any where in the plaint but still reading the plaint as a whole would show that the claim against defendants, other than defendant no.1, is in tort. I cannot agree with Mr. Madan, as none of the paragraphs Nos.20, 38, 47, and 50 that were highlighted by Mr.Madan discloses any cause of action against defendant no.3. I am not commenting on other defendants since this application is filed only by defendant no.3 and the plaint against defendant no.4 has already been rejected.
10. Paragraph 38 has already been quoted above. Paragraphs 20, 47 and 50 read as under :
20. With a view to resolve these recurring issues, plaintiff no.1 proposed the opening and operation of a Joint Bank Account which could resolve this issue while maintaining transparency as to enabling Defendant no.1 getting complete clarity and transparency of the end use of the payments to be made by them, resulting in ensuring that the payments are made to upkeep the WTGs owned by Defendant No.1 only and this would avoid any disruption in the ensuing high wind season starting from May 2016. Such an arrangement whereby Defendant No.1 would be permitted to make payments directly to the vendors of spare parts and services, was not contemplated under the OC or the MC, however, this was proposed by Plaintiff No.1 only with a view to ensure the smooth and continuous functioning at appropriate levels of availability of the wind farms, in which Plaintiff No.1 could foresee significant disruptions on account of the failure to make timely payments by Defendant no.1. The email correspondence dated 8th April, 2016 and 16th April, 2016, in particular bare out this proposal of Plaintiff No.1. However, the proposal was never accepted in a practicable form acceptable by IDBI Bank with whom this arrangement was to be executed by Defendant No.1. as a result, the arrangement which was hugely favourable for vina k. 6/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc Defendant No.1 did not take effect.
47. The Plaintiffs submit that the change of ownership is the direct and proximate cause for the breakdown of the healthy long term business relationship which was existing since 2006 between the parties. Such change of ownership is often indicative of the financial stress of a Company and in the present case this is substantiated by the comments and figures contained in the Auditor's Report. These financial difficulties have resulted in delayed payments to Plaintiff No.1 and the consequent force majeure events. Defendant No.1 have sought to wrongly take advantage of such events by claiming liquidated damages for allegedly failing to meet the machine availability requirements.
50. The Plaintiffs submit that even otherwise, the causes for termination as recorded in the termination notice dated 10 th April, 2017 do not constitute a valid ground for which the agreements may be terminated. Defendant No.1 has terminated the contracts with Plaintiff No.1 with a view to avoid its liability to make payments for the operation charges and maintenance charges while continuing to avail the evacuation of power from the project. Defendant No.1 is well aware that utilisation of the evacuation facilities cannot be de hors the contract for operation and maintenance of the project. In this regard, it will not be out of place to draw attention to the change in the attitude of Defendant No.1 coinciding with the change of ownership."
None of these paragraphs or for that any of the paragraphs in the plaint mention that defendant no.3 has done any act or omission and that caused loss to plaintiffs. None of the paragraphs also indicate as to how plaintiffs are suing defendant no.3/applicant and for what. No prejudice or act or omission has even been indicated. Therefore for the Court to even come to a conclusion that mere fact that the case is weak or not likely to succeed and hence this application has to fail, also does not arise because the plaint discloses no cause of action. The Court might have postponed the suit to trial, if plaint had only disclosed some cause of action against defendant no.3. My finding is that it does not disclose any.
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sr.2.238.2017.doc
11. As regards, the reliance of Mr.Madan upon Sejal Glass Limited (supra), it is true that a plaint cannot be bifurcated, and if a plaint has to be rejected, it has to be rejected as a whole under Order 7 Rule 11 and it cannot be rejected in part. Sejal Glass Limited (supra) does not say anywhere that a plaint, as a whole, cannot be rejected against some of the defendants. Mr.Madan has relied upon paragraph no. 4 and the last sentence of paragraph no.8 of this Judgment to submit that even if plaint survives against certain defendants, Order 7 Rule 11 will have no application at all and the suit as a whole must proceed to trial. However, the Judgment has to be read based on the facts and circumstances that prevailed in that particular matter. The facts in Sejal Glass Limited (supra) are recorded in paragraph 2 of the said Judgment. In that case, the application under Order 7 Rule 11 was filed by all defendants unlike in the case in hand only one defendant has filed the application. By the impugned Judgment, the Court had held that the plaint has to be bifurcated because it disclosed no cause of action against the directors but the suit is to continue against defendant no.1-Company. In the case at hand, applicant, who is one of the defendant, is only seeking rejection of the plaint as a whole against applicant. More over, in paragraph 4 of Sejal Glass Limited (supra), the Court has quoted with approval that in Maqsud Ahmad v. Mathra Datt & Co.3 , there is no provision in the Civil Procedure Code for the 3 1936 SCC OnLine Lah 337 :AIR 1936 Lah 1021 vina k. 8/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc rejection of a plaint in part. Even in Bansi Lal v. Som Parkash4 which found approval of the Apex Court, the Punjab High Court was dealing with a case where a part of the plaint was rejected and the Court had held that rejection of the plaint must be as a whole and not as to a part. Therefore, when one reads Sejal Glass Limited (supra) as a whole, it deals with rejection of a plaint in part and not as whole and the Apex Court has held that rejection of a plaint in part is not permissible under Order 7 Rule 11. This is also confirmed by paragraph 9 of Sejal Glass Limited (supra) where the Apex Court has dealt with striking out or amending part of the pleadings.
12. If I have to accept Mr.Madan's interpretation of Sejal Glass Limited (supra), then in a given case, the plaint may have disclosed cause of action only against one particular party but the plaint still has 10 other parties to the suit against whom no cause of action are disclosed. Those parties still have to go through the entire process of trial, incur costs, for a conclusion to be arrived at after many years that the suit fails. At this point, paragraphs 132 and 133 of M.V. Sea success I are relevant and they read as under :
"132. It is true that a party should not be unnecessarily harassed in a suit. An order refusing to reject a plaint will finally determine his right in terms of Order 7 Rule 11 of the Code of Civil Procedure.
133. The idea underlying Order 7 Rule 11(a) is that when no cause of action is disclosed, the courts will not unnecessarily protract the hearing of a suit. Having regard to the changes in the legislative policy as adumbrated by the amendments carried out in the Code of 4 AIR 1952 Punj 38 vina k. 9/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc Civil Procedure, the courts would interpret the provisions in such a manner so as to save expenses, achieve expedition and avoid the courts resources being used up on cases which will serve no useful purpose. A litigation which in the opinion of the court is doomed to fail would not further be allowed to be used as a devise to harass a litigant.(See Azhar Hussain v. Rajiv Gandhi SCCat pp.324-35.)
13. In I.T.C Limited Vs. Debts Recovery Appellate Tribunal and others5, the Apex Court rejected the plaint against one of the defendant. The Division Bench of Rajasthan High Court in Mt. Phool Sundri Vs. Gurbans Singh and ors.6 also held that it is possible for the Court to reject the entire plaint so far as some of defendants are concerned and that would be a proper order under Order 7 Rule 11(a).
The Delhi High Court in the case of M/s. Sakthi Sugar Limited Vs. Union of India and another7 rejected the plaint against one of the defendant, i.e., Union of India. The Calcutta High Court in the case of National Insurance Company Ltd. vs Navrom Constantza And Ors. 8, rejected plaint against some of defendants for failure to disclose the cause of action.
14. Mr. Madan submitted in I.T.C Limited (supra) where the Apex Court held that a plaint can be rejected against only one defendant or some defendants, that was a case where application for rejection of the plaint was made after issues were settled and the Apex Court was considering that position. In my view, it makes no difference. The 5 (1998) 2 Supreme Court Cases 70 6 AIR 1957 RAJASTHAN 97 (V 44 C 38 April) 7 AIR 1981 Delhi 212 8 AIR 1988 Cal 155 vina k. 10/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc indisputable fact is the Court held that a plaint can be rejected against only one or some defendants.
15. The Apex Court in T. Arvandanam Vs. T. V. Satyapal9 , (V. R. Krishnaiyer, J as he then was) laid down that if on a meaningful and not formal reading of a plaint it is manifest that the plaint is vexatious or meritless in the sense of not disclosing a clear right to sue, trial Court should exercise its power under Order VII, Rule 11, Code of Civil Procedure, and should reject the plaint. So it is meaningful reading of the plaint which is required.
16. At this stage, it will also be useful to reproduce paragraph nos.
16, 27 and 29 of I.T.C Limited (supra) which reads as under:
"16. The question is whether a real cause of action has been set out in the plaint of something purely illusory has been stated with a view to get out of Order 7 Rule 11 CPC. Clever drafting creating illusions of cause of action are not permitted in law and a clear right to sue should be shown in the plaint (See T.Arivandandam v. T.V. Satyapal.)
27. As stated above, non-movement of goods by the seller could be due to a variety of tenable or untenable reasons, the seller may be in breach of contract but that by itself does not permit a plaintiff to use the word "fraud" in the plaint and get over any objections that may be raised by way of filing an application under Order 7 Rule 11 CPC. As pointed out by Krishna Iyer, J. in T. Arivandandam case, the ritual of repeating a word or creation of an illusion in the plaint can certainly be unravelled and exposed by the Court while dealing with an application under Order 7 Rule 11(a). Inasmuchas as the mere allegtions of drawal of monies without movement of goods does not amount to a cause of action based on "fraud", the Bank cannot take shelter under the words "fraud" or "misrepresentation" used in the plaint.
9 AIR 1977 SC 2421 vina k. 11/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc
29. For the aforesaid reasons, we hold that there is no cause of action even from the plaint allegations, against the appellant. Appeal allowed and the plaint is rejected under Order 7 Rule 11(a) as against the appellant-5th defendant. The appeal is allowed accordingly to that extent. There will be no order as to costs."
17. If one reads the plaint, it is a suit for damages for breach of contract by defendant no.1. Mr.Madan also submitted that the agreement with defendant no.1 prohibited any party from transferring or assigning their rights and liabilities provided under the contract to any third persons without the prior written consent of the other party, which shall not be unreasonably withheld. It is plaintiffs' case that the shareholdings in defendant no.1 changed from some persons who were the shareholders of defendant no.1 to defendant no.2, defendant no.2 sold the controlling interest in defendant no.1 to defendant no.3 and defendant no.3 sold the controlling interest of defendant no.1 to defendant no.4. Mr.Madan submitted that when the shareholders of defendant no.1 transferred their interest in defendant no.1 Company to defendant no.2, they had sought permission of plaintiffs and such permission was granted. Mr. Madan submitted that therefore defendant no.2 ought to have sought permission of plaintiffs, defendant no.3 also ought to have sought permission of plaintiffs before transferring to defendant no.4.
I do not find any averments in the plaint that defendant nos.2 and 3 had agreed with plaintiffs to seek permission of plaintiffs before transferring their rights to defendant nos.3 and 4. Admittedly, there is vina k. 12/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 ::: sr.2.238.2017.doc no contract between plaintiffs and defendant nos.2, 3 and 4. Moreover, unless, there is express transfer or assignment of an agreement by the Company in favour of some other party, it cannot be ordinarily said that there is assignment or transfer of the rights and obligations under the contract merely because there is transfer of shareholding. (M/s.Green Hut Pvt. Ltd. And anr. Vs. Staet of West Bengal & ors.10)
18. In the circumstances, chamber summons is allowed and accordingly disposed in terms of prayer clauses (a) and (b). Plaint against defendant no.3 is rejected.
19. Mr.Madan prays for stay of this order. Prayer rejected.
20. Registry to make necessary endorsement.
(K. R. SHRIRAM, J.) 10 2010 SCC OnLine Cal 610 vina k. 13/13 ::: Uploaded on - 17/12/2018 ::: Downloaded on - 28/12/2018 23:11:22 :::