Bombay High Court
Manish Waman Ambre ... vs K G Millennium Realtors Private ... on 31 January, 2023
Bench: N. J. Jamadar
SWAROOP Digitally
by SWAROOP
signed
SHARAD SHARAD PHADKE
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Date: 2023.01.31
PHADKE 17:57:07 +0530
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
IN ITS COMMERCIAL DIVISION
INTERIM APPLICATION (L) NO.8886 OF 2021
IN
SUMMONS FOR JUDGMENT NO.1 OF 2020
IN
NOTICE OF MOTION NO.2243 OF 2019
IN
COMM. SUMMARY SUIT NO.1168 OF 2019
Manish Waman Ambre ... Applicant
and
K.G.Millennium Realtors Pvt. Ltd. And Ors. ... Plaintiffs
versus
M/s. Samarth Erectors & Developers and Ors. ... Defendants
WITH
INTERIM APPLICATION NO.1932 OF 2022
IN
INTERIM APPLICATION (L) NO.8886 OF 2021
IN
SUMMONS FOR JUDGMENT NO.1 OF 2020
IN
NOTICE OF MOTION NO.2243 OF 2019
IN
COMM. SUMMARY SUIT NO.1168 OF 2019
Mr. Milan Desai i/by T.R.Patel, for Applicant.
Mr. Kevic Setalvad, Sr. Advocate with Mr. S.D.Shetty, Ms. Vimal Khandare i/by
M.V.Kini and Co., for Org. Plaintiffs.
CORAM : N. J. JAMADAR, J.
RESERVED ON : 29 SEPTEMBER, 2022
PRONOUNCED ON : 31 JANUARY 2023
ORDER :
1. The Applicant/Original Defendant No.3 has preferred this Application
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to set aside the order and decree dated 17 March 2021 passed by this Court in SJ 1 of
2020 in COMSS No.1168 of 2019, whereby and whereunder the Summons for
Judgment came to be allowed by passing a decree in terms of prayer clause (a) in the
sum of Rs.18.57 Crores along with interest @ 18% p.a. from 7 May 2018 till payment
and/or realization.
2. The background facts leading to this Application can be stated as under :
2.1 K.G.Millennium Realtors Pvt. Ltd. (K.G.Millennium) - Plaintiff No.1 is
a company incorporated under the provisions of the Companies Act, 1956. Plaintiff
No.2 is the director of Plaintiff No.1. Plaintiff No.2 was the manager of Plaintiff Nos.1
and 2 for the purpose of day to day supervision of the building construction project
undertaken in partnership with Samarth Erectors & Developers (Samarth) -
Defendant No.1 firm. Defendant Nos.2 to 5 are the partners of Samarth.
2.2 Based on the representations of the Defendants, K.G.Millennium agreed
to develop a property at Andheri (E), Mumbai in partnership with the Defendants. A
Memorandum of Understanding dated 12 November 2014 came to be executed
between Plaintiff Nos.2 and 3, on the one part, and the Defendants, on the other part.
In accordance with the said MOU, Plaintiff Nos.2 and 3 were to be admitted as
partners of Samarth.
2.3 Plaintiff Nos.2 and 3 were to contribute a sum of Rs.10 Crores in the said
project. Profits were to be shared between Plaintiff Nos.2 and 3 and the Defendants
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in the ratio of 32% : 68%. Pursuant to the said MOU, a Deed of Admission into
Partnership came to be executed on 22 November 2014. Plaintiff Nos.2 and 3 were to
have 22% and 10% share in the profits, respectively.
2.4 A fresh MOU came to be executed between the parties on 21 January
2015, whereunder the Defendants acknowledged to have received a sum of Rs.4
Crores from the Plaintiffs towards the capital. MOU further recorded that there
would be a minimum net profit of Rs.17.31 Crores in the said development project and
it would be shared in accordance with the profit sharing ratio i.e. 32% : 68%. The
Defendants agreed to share the profit at the said rate of 32% aggregating to Rs.22.50
Crores by the end of 24 months from 1 February 2015.
2.5 In the minutes of meeting dated 20 July 2015, the Defendants agreed and
acknowledged receipt of Rs.6.85 Crores from the Plaintiffs. Remaining amount of
capital of Rs.10 Crores, to be contributed by the Plaintiffs, was agreed to be paid as per
the modified timelines. This was followed by a fresh MOU executed in the month of
September, 2016, whereunder the Defendants acknowledged to have received a sum of
Rs.7 Crores. The share in the profits of the Plaintiffs was reduced to 22.40%
aggregating to Rs.15.75 Crores. It was further agreed that the Plaintiffs would be
entitled to minimum share of profit of Rs.15.75 crores.
2.6 In the wake of default on the prat o the Defendants to pay the profits as
agreed, a further MOU was executed on 29 July, 2017 whereby and whereunder the
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Defendants agreed to pay an amount of Rs13.35 crores within a period of six months
from 29 July 2017. Since the Defendants did not comply with the undertaking in the
MOU, further negotiations ensued and, eventually, a Settlement Agreement came to
be executed on 7 May 2018.
2.7 Under the Settlement Agreement, the Defendants acknowledged
liability to pay to the Plaintiff Nos.2 and 3 a sum of Rs.19.25 Crores. It further
recorded that the parties arrived at a settlement to provide that a lumpsum amount of
Rs.13.35 Crores be paid by the Defendants to Plaintiff Nos.2 and 3. Stipulations were
made for payment of the said amount of Rs.13.35 Crores in installments. Cheques
were drawn in discharge of the said liability. The Defendants further agreed that, in
the event of two consecutive defaults, the Settlement Agreement shall be deemed to
have been breached and, thereupon, Plaintiff Nos.2 and 3 shall be entitled to recover
the entire amount of Rs.19.25 Crores along with interest @ 18% p.a. on the outstanding
amount from 7 May 2018.
2.8 The Defendants again committed default in payment of the amount in
accordance with the terms of the Settlement Agreement. Hence, the suit for recovery
of the amount of Rs.19.25 Crores along with interest thereon on the basis of the
written contract contained therein.
3. The Defendants appeared in response to the service of the Writ of
Summons. The Plaintiffs took out a Summons for Judgment. An Affidavit in Reply
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came to be filed on behalf of the Defendants seeking unconditional leave to defend the
Suit.
4. The Defendants assailed the tenability of the Suit on the ground that the
first MOU dated 12 November, 2014 and the 2 nd MOU dated 19 February 2015
provide for a dispute resolution mechanism. All the disputes between the parties
were to be referred to and resolved by arbitration. In addition, according to the
Defendants, Deed of Retirement which came to be executed between the parties
pursuant to the Settlement Agreement also contained an arbitration clause (Clause
22), mandating the resolution of the dispute through arbitration. Thus, the Suit
instituted, without invoking arbitration, deserves to be dismissed on the said count
alone.
5. Secondly, the Defendants contend that the subject mater of the suit is
plainly and essentially a partnership dispute and the project has yet not been
completed. Accounts were yet to be settled. In the circumstances, a summary suit
based on the Settlement Agreement for settling the partnership dispute, is not tenable.
6. Thirdly, the Plaintiffs had invested a sum of Rs.6.85 Crores only, as
against the agreed amount of Rs.10 Crores. Failure on the part of the Plaintiffs to
bring further amount adversely affected the development of the project. In any event,
according to the Defendants, Settlement Agreement does not amount to written
contract within the meaning of Order XXXVII Rule (1) (2) of the Code of Civil
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Procedure, 1908. Therefore, the Defendants were entitled to an unconditional leave
to defend the Suit.
7. Upon completion of pleadings, the Summons for Judgment came to be
listed before the Court for hearing on 15 March 2021. None appeared for the
Defendants. The learned Single Judge of this Court, after considering the pleadings
and material on record, was persuaded to allow the Summons for Judgment and pass a
decree in the sum of Rs.18.57 Crores along with interest @ 18% p.a. after allowing the
credit for the sum of Rs.68 Lakhs which were stated to have been paid by the
Defendants to the Plaintiff Nos.2 and 3, in the intervening period.
8. The Court noted that there were only two defences raised to seek leave
to defend. First, MOU and Partnership deed contained arbitration clause. Second,
the Settlement Agreement did not constitute a written contract. Both the defences
were found unworthy of consideration. Since the Defendants had not preferred an
Application under Section 8 of the Arbitration and Conciliation Act, 1996, the defence
of existence of an arbitration agreement was found to be of no consequence. The
Court further found that the Settlement Agreement dated 7 May 2018, in fact,
constituted a written contract within the meaning of Order 37 Rule (1) (2) of the Code.
Thus, there was not even a statable defence to warrant leave to defend the Suit.
9. The Defendants preferred the instant application purportedly under
Order 9 Rule 13 to set aside the decree contending, inter alia, that on account of the ill
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health of the then Advocate on record for the Defendants, none appeared before the
Court when the Summons for Judgment was taken up for hearing and a decree came
to be passed. It was further contended that the Advocate on record of the Defendants
was unaware of the listing of the matter before the Court on 15 and 17 January 2021.
Since the Defendants had diligently pursued the matter by filing Affidavit seeking
leave to defend and they have a strong case on merits, the decree deserves to be set
aside, lest the Defendants would suffer an irreparable loss.
10. I have heard Mr. Desai, learned counsel for the Applicant and Mr.
Setalvad, Senior Advocate appearing for the Plaintiffs. With the assistance of the
learned Counsel for the parties, I have perused the pleadings and the documents
placed on record, including the order passed by this Court on 17 March 2021.
11. To start with the challenge to the tenability of the Application. Mr.
Setalvad strenuously submitted that an Application under Order 9 Rule 13, like the
present one, to set aside the decree passed under Order 37 of the Code is not a proper
remedy. Inviting the attention of the Court to the provisions contained in Rule 4 of
Order 37, Mr. Setalvad urged that the provisions contained in Order 37 Rule 4 which
empower the Court to set aside the decree passed under the said Order are quite
distinct from the parameters which govern the setting aside of an ex-parte decree
under Order 9 Rule 13 of the Code.
12. To draw home this point, Mr. Setalvad placed a strong reliance on a
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judgment of the Supreme Court in the case of Rajni Kumar vs. Suresh Kumar
Malhotra and another,1 wherein a distinction between the provisions contained in
Order 9 Rule 13 under Order 37 Rule 4 of the Code was illuminatingly postulated :
"8] A careful reading of Rule 4 shows that it empowers, under special
circumstances, the court which passed an ex parte decree under Order
37 to set aside the decree and grant one or both of the following reliefs,
if it seems reasonable to the court so to do and on such terms as the
court thinks fit :
(i) to stay or set aside execution and
(ii) to give leave to the defendant (a) to appear to the summons and (b)
to defend the suit.
9] The expression 'special circumstances' is not defined in the Civil
Procedure Code nor is it capable of any precise definition by the court
because problems of human beings are so varied and complex. In its
ordinary dictionary meaning it connotes something exceptional in
character, extra-ordinary, significant, uncommon. It is an antonym of
common, ordinary and general. It is neither practicable nor advisable to
enumerate such circumstances. Non-service of summons will
undoubtedly be a special circumstance. In an application under Order
37, Rule 4, the court has to determine the question, on the facts of each
case, as to whether circumstances pleaded are so unusual or extra
ordinary as to justify putting the clock back by setting aside the decree;
to grant further relief in regard to post-decree matters, namely, staying
or setting aside the execution and also in regard to pre decree matters
viz., to give leave to the defendant to appear to the summons and to
defend the suit.
... ...............
1 (2003) 5 SCC 315.
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11] It is important to note here that the power under Rule 4 of Order 37
is not confined to setting aside the ex parte decree, it extends to staying
or setting aside the execution and giving leave to appear to the
summons and to defend the suit. We may point out that as the very
purpose of Order 37 is to ensure an expeditious hearing and disposal of
the suit filed thereunder, Rule 4 empowers the court to grant leave to
the defendant to appear to summons and defend the suit if the Court
considers it reasonable so to do, on such terms as court thinks fit in
addition to setting aside the decree. Where on an application, more than
one among the specified reliefs may be granted by the Court all such
reliefs must be claimed in one application. It is not permissible to claim
such reliefs in successive petitions as it would be contrary to the letter
and spirit of the provision. That is why where an application under Rule
4 of Order 37 is filed to set aside a decree either because the defendant
did not appear in response to summons and limitation expired, or
having appeared, did not apply for leave to defend the suit in the
prescribed period, the court is empowered to grant leave to defendant
to appear to the summons and to defend the suit in the same
application. It is, therefore, not enough for the defendant to show
special circumstances which prevented him from appearing or applying
for leave to defend, he has also to show by affidavit or otherwise, facts
which would entitle him leave to defend the suit. In this respect, Rule 4
of Order 37 is different from Rule 13 of Order 9. "
13. The Supreme Court has thus enunciated that when the defendant seeks
setting aside of a decree passed in a summary suit by invoking the provision contained
in Order XXXVII Rule 4, two conditions are required to be satisfied. First, it is
incumbent upon the defendant to demonstrate, "special circumstances" which merit
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setting aside of the decree. Second, there is a further obligation on the defendant to
satisfy the Court that the facts of the case are such that he is entitled to leave to defend
the suit. This additional requirement stems from the legislative policy of not
permitting a defendant in a suit under Order XXXVII to defend the suit as a matter of
right.
14. Indeed in the instant application, the Defendant expressly seeks setting
aside of the decree under Order 9 Rule 13 of the Code. However, that cannot be the
sole reason to throw the Application overboard. It is trite an inaccurate reliance on a
particular provision with reference to which relief is sought, may not be of decisive
significance What has to be considered is whether a case for setting aside of the
decree in accordance with the governing provisions is made out.
15. On the first count, it is the case of the Defendants that they could not
appear before the Court on 15 and 17 March 2021 as their Advocate was unwell. Mr.
Desai would urge that March 2021 was a tumultuous time as the second wave of
Covid-19 Pandemic was playing havoc in different parts of the country, in varying
degrees. It is in the backdrop of this situation, according to Mr. Desai, the inability of
the Defendants to appear before the Court when the decree was passed, needs to be
appreciated.
16. I find substance in the submission of Mr. Desai. Viewed through this
prism, the contention on behalf of the Defendants that the learned Advocate for the
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Defendants could not proceed with the matter as he was unwell, cannot be brushed
aside lightly. Though the provisions contained under Order 9 Rule 13 do not apply to
set aside a decree passed under Order 37, yet in the matter of consideration as to
whether there was sufficient cause for the Defendants not to appear before the Court
when the decree was passed, the approach expected of the Court while considering an
Application therein, equally informs the approach in an application under Order 37
Rule 4 of the Code.
17. The term 'sufficient cause' must receive a liberal consideration so as to
advance the cause of substantive justice. The Court cannot be influenced by indolence
or negligence on the part of the Defendants, in the past, and must consider sufficiency
of the cause for non-appearance on the day on which the decree came to be passed.
The fact that the Defendants approached the Court to set aside the decree within a
reasonable time of passing of the decree, by ascribing justifiable reasons, is also a
relevant consideration in the exercise of discretion.
18. A useful reference in this context can be made to the observations of the
Supreme Court in the case of G.P.Srivastava V/s. R.K.Raizada and Ors.2 wherein
the approach expected of the court while dealing with an application for setting aside
of decree was delineated. Paragraph 7 reads thus :
"7. Under Order 9 Rule 13 CPC an ex parte decree passed
against a defendant can be set aside upon satisfaction of the
2 2000 (3) SCC 54
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Court that eiher the summons were not duly served upon the
defendant or he was prevented by any 'sufficient cause' from
appearing when the suit was called on for hearing. Unless
'sufficient cause' is shown for non-appearance of the defendant
in the case on the date of hearing, the Court has no power to set
aside an ex parte decree. The words "was prevented by any
sufficient cause from appearing" must be liberally construed to
enable the Court to do complete justice between the parties
particularly when no negligence or inaction is imputable to the
erring party. Sufficient cause for the purpose of Order 9 Rule 13
has to be construed as an elastic expression for which no hard
and fast guidelines can be prescribed. The Courts have a wide
discretion in deciding the sufficient cause keeping in view the
peculiar facts and circumstances of each case. The "sufficient
cause" for non-appearance refers to the date on which the
absence was made a ground for proceeding ex parte and cannot
be stretched to rely upon other circumstances anterior in time. If
'sufficient cause' is made out for non-appearance of the
defendant on the date fixed for hearing when ex- parte
proceedings were initiated against him, he cannot be penalized
for his previous negligence which had been overlooked and
thereby condoned earlier. In a case where the defendant
approaches the court immediately and within the statutory time
specified, the discretion is normally exercised in his favour,
provided the absence was not mala fide or intentional. For the
absence of a party in the case the other side can be compensated
by adequate costs and the lis decided on merits".
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(Emphasis supplied)
19. The aforesaid pronouncement, if considered in the backdrop of the
exigency of the situation, which arose on account of C-19 Pandemic, renders the cause
ascribed by the Defendants for non-appearance on the day the decree came to be
passed, justifiable. Two factors bear upon the exercise of discretion. First, the
Defendants had already filed an Affidavit seeking leave to defend the Suit by raising
multiple defences. Second, the application for setting aside the decree came to be filed
under 8 days of the passing of the decree. This vouches for the diligence and bonafide
of the Defendants. I am, therefore, persuaded to hold that the Defendants have
succeeded in demonstrating that there was a sufficient cause for non-appearance.
20. Mr. Setalvad urged with a degree of vehemence that even if the Court
was to hold in favour of the Defendants on the count of sufficient cause for non-
appearance, no case for setting aside the decree is made out as the Defendants
miserably failed to satisfy the pivotal test of existence of 'special circumstance' to set
aside the decree. It is not enough for the Defendants to demonstrate that the
Defendants were prevented from appearing before the Curt by a sufficient cause, but
the Defendants are further enjoined to show by an Affidavit or otherwise the facts
which would entitle them to leave to defend the suit, urged Mr. Setalvad.
21. Banking upon the enunciation of law in the case of Rajni Kumar
(supra), Mr. Setalvad would urge that the Affidavit in Reply fails to make out a
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defence, much less a substantial, fair or reasonable one warranting grant of leave to
defend. In any event, according to Mr. Setalvad, while passing the order sought to be
set aside, this Court had ascribed justifiable reasons in repelling the twin defences of
existence of arbitration agreement and non-existence of a written contract and,
therefore, there is now no justification for setting aside the decree.
22. In opposition to this, Mr. Desai stoutly submitted that the Plaintiffs case
suffers from the vice of deliberate suppression of material facts. The Plaintiffs did not
deliberately refer to the deed of retirement executed by and between the parties on 7
May 2018, under which Plaintiff Nos.2 and 3 stood retired from the Defendant No.1
firm. Mr. Desai further urged that the deed of retirement also contains an arbitration
clause (clause 22). Yet the Plaintiffs, with an oblique motive, based the suit on the
Settlement Agreement.
23. According to Mr. Desai, in the face of the deed of admission into the
partnership firm and the deed of retirement, real dispute between the parties
essentially arises out of the partnership agreement. This itself, according to Mr.
Desai, raises a triable issue. Secondly, the suit is not properly constituted in as much
as K.G.Millenium, a Corporate entity, was never a partner of Samarth - Defendant
No.1. Nor K.G.Millenium is a party to the Settlement Agreement dated 7 May 2018.
In the circumstances, the Summary Suit seeking a decree in favour of the Plaintiff
No.1 as well is not tenable.
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24. Thirdly, Mr. Desai made an endeavour to draw home the point that, even
on the merits of the claim, since Plaintiff Nos.2 and 3 did not invest the entire amount
of Rs.10 Crores, and what the Plaintiffs seek is the share in the estimated profit and
not actual profit, the alleged liability of the Defendants to pay the amount in
accordance with the Settlement Agreement is debatable. Therefore, the Defendants
are entitled to an unconditional leave to defend the Suit.
25. On the aspect of the existence of an arbitration clause, it is pertinent to
note that the deed of admission dated 12 November 2014 contained an arbitration
clause (clause 13), MOU dated 19 February 2015 also provided for dispute resolution
through arbitration (clause 16) and, as noted above, deed of retirement dated 7 May
2018 contained an arbitration clause (clause 22). In contrast, the Settlement
Agreement dated 7 May 2018, on the strength of which the Plaintiffs have instituted
Summary Suit, does not contain an arbitration clause.
26. The question as to whether arbitration clauses contained in the Deed of
Admission dated 12 November 2014 and the Deed of Retirement dated 7 may 2018
govern the disputes which arise out of the Settlement Agreement as well, does not
arise for consideration as evidently the Defendants have not applied under Section 8 of
the Arbitration and Conciliation Act, 1996 for a reference before submitting their first
statement on the substance of the dispute. Instead the Defendants contend that the
suit is liable to be dismissed on account of the said arbitration clause. This plea of the
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Defendants is plainly unsustainable.
27. Equally untenable is the defence that the Settlement Agreement does
not constitute a written contract within the meaning of Order 37 Rule 1 (2). It would
be suffice to extract few clauses of the Settlement Agreement dated 7 May 2018 in
which the parties have also narrated the history of the transactions and how the terms
of the agreement between the parties came to be progressively modified :
"1) Parties of the First and Second part have now mutually
agreed and arrived into a settlement for payment of the aforesaid sum
of Rs.19.25 Crores, for lump sum amount of Rs.13.35 Crores and on
payment of the said settled sum of Rs.13.35 Crores, the party of the
Second part shall admit and confirm that the amount of Rs.19.25
Crores has been fully paid for lump sum amount of Rs.13.35 Crores
being the full and final settlement amount and on execution of this
MOU the party of the second part shall also execute the deed of
retirement from the partnership firm and after execution hereof the
party of the second part being retiring partners shall have no claim
against the continuing partners and/or then existing partners and/or
partnership nor have any liability of whatsoever nature either to the
said partnership Firm or arising under the said Partnership Firm.
2) The party of the First Part shall pay the settlement amount of
Rs.13.35 Crores to the party of the Second part to Mr.Sunil D. Gupta
(which shall include the amounts due to Mr.Ravi S. Gupta and
Rs.1.18 Crs. Shall be payable directly as per Appendix B and C)
within the period commencing from 7.5.2018 and ending at 28.2.2019
in 7 installments on the following dates,:-
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Date Chq. No. Payment (Rs.)
30.05.2018 111268 Rs.0.85 Crores
30.05.2018 111269 Rs.0.50 Crores to Smt. Ruta Gupta
14.07.2018 111270 Rs.1.32 Crores
14.07.2018 111271 Rs.0.68 Crores to S P Gupta (HUF)
31.08.2018 111272 Rs.2 Crores
14.10.2018 111273 Rs.2 Crores
30.11.2018 11275 Rs.2 Crores
14.01.2019 112780 Rs.2 Crores
28.02.2019 112767 Rs.2 Crores
The party of the First part shall handover on execution of
this Settlement Agreement 7 (seven) duly signed Cheques for the
amount referred herein above and the said Cheques shall be submitted
on the respective due dates for payment. However, the party of the
Second part with specific written request of the party of the First part
may extend the date for deposit of the Cheques at the most for 45 more
days from the due date but in any event the said payment shall be
paid on or before or along with the immediate next installment and
the last installment at any circumstances be paid on or before 28 th of
February, 2019.
3) The parties expressly agree that there shall not be two consecutive
defaults/delays at any point of time and in the event of two
consecutive defaults in the payment of the installment as agreed
hereinbefore or default in payment of last installment by 28.02.2019,
this Settlement Agreement deemed to have been breached by the party
of the First part and in any such eventuality, the party of the second
part shall have the absolute right and liberty to recover the entire
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amount of Rs.19.25 Crores, from the party of the First part and the
party of the first part shall be liable to pay the said entire amount to
the party of the Second part along with interest @ 18 % p.a. on the
said balance amount from 07.05.2018 till the full and final payment
and/or recovery thereof. It is, however, agreed that the amount
already paid under this Agreement shall be given credit against the
amount due and recoverable from the party of the First part.
4) In the event of this Settlement Agreement fails, the dues mentioned
herein, shall carry interest @ 18% p.a.
5) It is also agreed that in the event of settlement fails, the party of
the First part shall be liable to pay the party of the Second party the
amount of Rs.19.25 Crores along with interest @ 18% p.a. from the
date of this Agreement. It is, however, agreed that the amount already
paid under this Agreement shall be given credit against the amount
due and recoverable from the party of the First Part."
28. In the face of aforesaid stipulations, it would be simply impermissible for
the Defendants to urge that the Settlement Agreement does not constitute a written
contract.
29. I have extracted the terms of the Settlement Agreement on purpose. The
aforesaid terms are required to be appreciated in the backdrop of few uncontroverted
facts. First, Plaintiff Nos.2 and 3 only, were admitted into the partnership on the
terms that they would invest an amount of Rs.10 Crores. In the MOU dated 29 July
2017 the Defendants have acknowledged that Plaintiff Nos.2 and 3 paid a sum of Rs.7
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Crores. Initially, the parties had agreed that the profits would be shared by the
Plaintiff Nos.2 and 3 and Defendants in the ratio of 32% : 68%. With the reduction in
the exposure of the Plaintiffs, the ratio came to be modified to 22.40% : 77.60%. In
accordance with the modified ratio, under the MOU dated 29 July 2017, it was agreed
that a sum of Rs.13.35 Crores was to be paid to the Plaintiffs by the Defendants within
six months of 29 July, 2017. It is imperative to note that the Agreement to share profit
was premised on estimated profits. In the event, the profits fell below the estimated
profits, the Defendants were to compensate the Plaintiffs on their own accord (para 11
of the MOU dated 19 February 2015 and para 11 of the MOU executed in the month of
September, 2016).
30. It would be contextually relevant to note that the Deed of Retirement
executed on the very day on which the Settlement Agreement was executed i.e. 7 May
2018, inter alia, provided for the Settlement of the Accounts and cessation of the
interest of the retiring partners. Clauses Nos.5 and 6 of the Deed of Retirement read
as under :
"5. The parties hereto agree that partnership accounts up to
the date of retirement shall be prepared and settled by taking
amongst other thing value of all the existing rights, assets and
liabilities of the partnership business. The balance amount standing
in the name of the retiring partners as capital to be transferred to
loan account.
6. The Retiring Partner shall not have any right, title and interest in
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the said partnership business and all the assets including goodwill,
benefits of all permits and licenses held by the firm."
31. It seems that instead of settling the accounts as of the date of retirement,
a contemporaneous Agreement for Settlement has been executed by and between the
parties. However, it does not make a reference to the Deed of Retirement. In the
circumstances, what consequences flow from the execution of the Deed of
Retirement, in my view, raises a triable issue. The character of the sum of Rs.19.25
Crores which the Defendants acknowledged as due and payable under clause 1 of the
Settlement Agreement (extracted above) is thus a matter for adjudication. Profits have
yet not been ascertained. Determination of the ratio of profit was, as seen above, on
the basis of an estimated profit. Moreover, the quantum of profits, in the event the
profit fell below the estimated amount, was a matter to be addressed by the Defendants
on their own accord. All these factors, in my considered view, render the entitlement
of the Plaintiffs to the amount agreed to be paid by the Defendants a matter for trial.
32. Nonetheless, there is a clear and categorical acknowledgment of a
receipt of Rs.7 Crores in the MOU dated 29 July, 2017. Even in the Affidavit in Reply,
there is a clear and categorical admission that the Plaintiff Nos.2 and 3 have invested a
sum of Rs.6.85 Crores. Though, on the said count, an endeavour was made to contest
that Plaintiff Nos.2 and 3 have paid a sum of Rs.7 Crores, in view of the clear and
explicit admission of receipt of the amount of Rs.7 Crores and the fact that the short
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fall is relatively small, I am impelled to hold that the Defendants do not deserve leave
to defend the Suit without making a deposit of the admitted amount of Rs.7 Crores.
33. The upshot of aforesaid consideration is that the decree passed by this
Court on 17 March 2021 is required to be set aside and the Defendants are entitled to
grant of leave to defend the Suit on the condition of deposit of Rs.7 Crores.
34. Hence, the following order :
ORDER
(i) The Application stands allowed.
(ii) The order and decree dated 17 March 2021 allowing the
Summons for Judgment stand set aside.
(iii) The Defendants are granted leave to defend the suit subject to
condition of deposit of Rs.7 Crores in this Court within a period of six weeks from
today.
(iv) If the aforesaid deposit is made within the stipulated period, this
suit shall be transferred to the list of Commercial Causes and the defendants shall file
their written statement within a period of thirty days from the date of deposit.
(v) If this conditional order of deposit is not complied with, within
the above stipulated period, the plaintiffs shall be entitled to apply for an ex-parte
decree against the defendants after obtaining a non-deposit certificate from the
Prothonotary and Senior Master of this Court.
SSP 21/22
ial 8886 of 2021.doc
(vi) The Summons for Judgment accordingly stands disposed.
(vii) In view of the disposal of this Application, the IA No.1932 of
2022 also stands disposed.
( N.J.JAMADAR, J. )
SSP 22/22
