Bombay High Court
Antara Housing Llp vs Primeland Constructions on 3 October, 2022
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
sjl-15542-2022.doc
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
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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
sjl-15542-2022.doc
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
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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
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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
sjl-15542-2022.doc
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
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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
sjl-15542-2022.doc
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
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
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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
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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
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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
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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
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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
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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.
Vishal Parekar, P.A. ...22
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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
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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
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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
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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
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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
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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.
Vishal Parekar, P.A. ...28
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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
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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.
Vishal Parekar, P.A. ...30
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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.)
Vishal Parekar, P.A. ...31
