The Madras High Court reiterated that Section 12A of the Commercial Courts Act, 2015 (hereinafter referred to as “CCA”) is mandatory and is a jurisdictional fact.
It was opined that a jurisdictional fact should precede the suit and there can be no ex post facto jurisdictional fact.
Further, the Court directed the parties to go for pre-institutional mediation because Plaintiff himself suggested that Defendant should have at least discussed with Plaintiff before taking a unilateral step. On basis of the conciliatory tone and tenor of Plaintiff, the High Court rejected the plaint.
Brief Facts:
Defendant No. 2 is a company incorporated in 2007-2008 to own, manage and operate captive Power Generating Plants and act as a Special Purpose Vehicle (hereinafter referred to as “SPV”) qua Electricity Rules, 2005. The Plaintiff is a nominee shareholder in this company.
Defendant No. 2 wanted to set up a coal-based group captive thermal Power Station in Gujarat and for this, a loan was sanctioned in 2008 by Punjab National Bank (hereinafter referred to as “PNB”). Plaintiff, on the other hand, divested his shareholding and resigned in 2012.
Due to some amendments in the terms of sanction, the security for the term loans provided also had to be modified. A Personal Guarantee Agreement was signed in 2014 wherein the Plaintiff is the guarantor.
The present suit is filed to declare the said guarantee agreement as null and void and to restrain PNB from relying on this guarantee for the transactions between PNB and Defendant No. 2.
In this regard, prayer was sought for an interim injunction to restrain the PNB and Defendant No.2 from relying on the said guarantee agreement.
The issue is whether the present suit qualifies as a suit where there is ‘contemplation of urgent interim relief’ as provided in Section 12A of CCA.
Brief Background:
PNB had invoked the personal guarantee and the Plaintiff contended that this was an impulsive unilateral step taken by PNB.
Observations of the Court:
The High Court firstly relied on the case of Patil Automation Private Limited and Others v. Rakheja Engineers Private Limited (2022 SCC OnLine SC 1028) wherein the Hon’ble Supreme Court declared Section 12A of CCA as mandatory.
The Bench observed that since in the mail sent to PNB, Plaintiff has himself stated that PNB should have at least shown the courtesy of ‘discussing’ before taking any such steps. This means that Plaintiff himself is inclined to do mediation.
The Court relied on K. Varathan v. Mr. Prakash Babu Nakundhi Reddy (C.S. (Comm. Div. No. 202 of 2022) and examined whether the parameters/tests laid down, in this case, were satisfied in the present case.
It was noted that Plaintiff himself allowed the matter to slip into sleep and may go into slumber as he suggested that PNB should have discussed with Plaintiff as the parties have a long-standing cordial association. The possibility of mediation stems from the conciliatory tone and tenor. It was also noted that there was nothing that prevented Plaintiff from invoking Section 12A of CCA and no circumstances suggest that availing remedy of pre-institution mediation would create the irreversible situation.
On the issue of ‘urgency’, the High Court noted that the Plaintiff has not been able to prove that there was a requirement for prompt action and to prove urgency, a high standard is required to establish the need for prompt action.
With regards to the test that actual apprehended injury should be so imminent that Plaintiff should satisfy the Court that he should not be made to suffer, Plaintiff contended that there were proceedings ongoing in NCLT initiated by SBI. But, there is nothing that is placed on record. The Court observed that the urgent interim relief and contemplation is tested as on the date of institution of the suit. It was reiterated that Section 12A is mandatory and is in the nature of jurisdictional fact.
The Madras High Court propounded that a jurisdictional fact should precede the suit and there can be no ex post facto jurisdictional fact.
The decision of the Court:
Based on the above-mentioned reasons, the Madras High Court rejected the plaint but granted the liberty to the Plaintiff to approach this Court in case pre-institution mediation becomes a non-starter or fails.
Case Title: Arvind Gupta v. Punjab National Bank & Anr.
Coram: Hon’ble Mr. Justice M. Sundar
Case No.: C.S. (Comm. Div.) No. 216 of 2022
Advocates for Plaintiff: Advs. Mr. S.R. Rajagopal, Ms. Tushitha B.
Advocates for Defendants: Ms. Vinithra Srinivasan
Read Judgment @LatestLaws.com
Picture Source :
