Maxwell Securities Pvt. Ltd. And ... vs National Stock Exchange Of India ...
2001 Latest Caselaw 1559 Del

JUDGMENT

V.S. Aggarwal, J.

1. Section 10 of the Code of Civil Procedure reads:-

"10. Stay of suit - No Court shall proceed with the trial of any suit in which the matter in issue is also directly and substantially in issue in a previously instituted suit between the same parties, or between the parties under whom they or any of them claim litigating under the same title where such suit is pending in the same or any other Court in (India) having jurisdiction to grant the relief claimed, or in any Court beyond the limits of (India) established or continued by (the Central Government (***) and having like jurisdiction, or before (the Supreme Court)."

 2. The ingredients of the same have been elucidated by this court in the case of    C L Tandon v. Prem Pal Singh     to be:-  

  

  "(a) The matter/matters in issue should be substantially the same in the two suits;  

 

 (b) The previously instituted suit should be pending in the same Court in which the subsequent suit is brought or in another court in India having jurisdiction to grant the relief claimed: and  

 

 (c) The two suits should be between the same parties or their representatives and these parties should be litigating in the two suits under the same title."   

 

 3. It is these principles that are being pressed besides section 151 of the Code of Civil Procedure in the facts of the case.  

 

4. M/s Maxwell Securities Pvt. Ltd. (hereinafter described as the plaintiff) had filed a civil suit for a declaration and permanent injunction for declaring that all decisions and action and conduct of the defendants (National Stock Exchange of India Ltd and Ors.) including the issuance of the circular dated 17th April, 1997 and the letter of 26th June, 1997 interfering with the rights of the plaintiff and restraining the free dealings of the share in the suits are arbitrary, capricious and illegal and for restraining the defendants from taking any other or further action on basis thereof. It has been alleged that plaintiff is a trading and clearing member of the defendants since October 1995. The plaintiff had delivered a number of shares of Reliance Industries and of the State Bank of India in settlement no. 1997011 out of which 81,000 shares of State Bank of India and 1100 shares of Reliance Industries were returned by the defendants to the plaintiff on 31st March, 1997 for rectification of the bad delivery. It is the case of the defendants that defendant no. 2 was empowered to buy shares from the market and honour delivery commitments of the plaintiff in respect of the shares in suit. The defendants issued a circular on 4th March, 1977 according to which defendant no. 2 may initiate a buy in auction on Wednesday immediately following the end of the trading period, if the value of the short sales at the end of the trading period resulting in terms of obligation to deliver, valid at Tuesday closing price plus 15% is greater than funds buy out available with the clearing corporation. This facility to initiate and an early buy is available also to the clearing members on their specific request to the defendants on 1st April, 1997 to initiate an early buy in recording the shares in question. It is the case of the defendants that they did not buy requisite shares from the market to honour the delivery commitments in respect of the shares in the suit and debited the account of the plaintiff in this regard. Despite that the defendants still issued a circular in April 1997 interfering in the rights of the plaintiff and restraining the free dealings of the shares in the suit. The plaintiff did make a specific request and on the aforesaid defendant no. 2 bought the requested shares from the market on the basis of said specific request of the plaintiff. When the plaintiff came to know he requested the defendants on 1st April, 1997 to initiate an early buy in regarding the shares in the suit. It is asserted that defendants are interfering in the rights of the plaintiff and are creating obstacles and hindrances in the plaintiffs dealing with the shares in suit, inter alia, at and from Delhi. One such instance has been given that plaintiff had sold 6000 shares of State Bank of India out of the shares in suit to M/s D B International Stock Brokers Ltd, New Delhi from 27th May 1997 to 3rd June 1997. The defendants illegally and wrongfully retained the said 6000 shares due to which M/s D B International Stock Brokers Ltd is not making the payment thereof to the plaintiff.

5. When the plaintiff came to know on 12th June, 1997 about circular of 7th April, 1997 by the defendants which vide the letter of 12th June, 1997 asked the defendants to withdraw the circular immediately. The same had not been done. The defendants are threatening to not only detain the shares but also dispose of the said 6000 shares. It is alleged that defendants have no right, title, claim or interest in the said shares and the plaintiff was absolutely right to deal with the same in any manner it liked. Even the principles of natural justice, equity and good conscious have been ignored. Plaintiff asserts that defendant cannot clothe themselves with totally arbitrary power which is capable of vicious discrimination and on basis of these facts the above said relief has been filed.

6. This civil suit had been filed in the District Court and has since been withdrawn and taken on the file of this court and registered as Suit No. 578/98. The said suit has been instituted prior to Suit No. 1413/97.

7. Suit No. 1413/97 has been instituted by National Stock Exchange of India and National Securities Clearing Corporation Ltd. (for short the respondent) against the plaintiff and others seeking a permanent and mandatory injunction besides a declaration is prayed holding that the defendants are rightly entitled to get 81000 shares of State Bank of India and 1100 shares of Reliance Industries and for a mandatory injunction directing defendants 3 to 5, namely State Bank of India, Reliance Industries and MCS Ltd to issue duplicate share certificates for 75100 shares of the State Bank of India and further directing defendants 4 to 6 to issue duplicate shares for 1100 shares of Reliance Industries and for directing defendants 3 to 5 to transfer 6000 shares of State Bank of India in favor of plaintiff no. 2. Injunction is also prayed against defendants 3 to 6 from registering or transferring or discharging or re-purchasing or making payment in respect of 81000 shares of State Bank of India and 1100 shares of Reliance Industries. The facts alleged are that defendant no. 1 is a stock exchange duly recognised in the interest of public by Central Government under Section 4 of the Securities Control (Regulation) Act, 1956. Respondent no. 2 is wholly owned subsidiary of defendant no. 1. It was incorporated to facilitate, set up and carry on business of clearing and settlement of shares, stocks, bonds, debentures etc. The plaintiff is a trading member of defendant no. 1 and TM clearing member of defendant no. 2. Plaintiff had applied for and was admitted as a trading member of defendant no. 1 and was even taken to be a member of defendant no. 2. The membership of the plaintiff to defendants 1 and 2 is governed by rules, bye-laws, regulations and circulars of defendants 1 and 2. AT the time of grant of membership of the members including the plaintiff has to give an undertaking that they shall observe bye-laws etc. The defendants in their suit has alleged that the plaintiff failed to pay the sum of Rs. 51,46,595/- to defendant no. 2 on or before 11th March, 1997. In view of the failure of the plaintiff to pay the aforesaid defendant no. 2 did not give the delivery of the securities purchased by the plaintiff under settlement no. 1997009. Vide letter of 14th March, 1997 it called upon the plaintiff to pay the outstanding dues by 2.30 PM failing which it was made clear that defendant no. 2 would be constrained to sell the said shares at its discretion and appropriate the sale proceeds towards outstanding dues. In response to the said letters the plaintiff acknowledge its liability to pay and assured that it was making arrangement for the funds. In the meantime, the plaintiff continued to trade on defendant no. 1 from 5th March, 1997 to 11th March, 1997 designated as settlement no. 1997010. It placed various orders for purchase and sale of various securities. As a result of those transactions defendants assert that plaintiff became liable to pay to defendants assert the plaintiff became liable to pay to defendant no. 2 a sum of Rs. 9,10,54,209.00. The plaintiff failed to pay the obligation as a result of trading in the 9th settlement of 11th March, 1997. Since the plaintiff failed to bring in funds within the stipulated time. The securities also failed to bring in delay margin amounts totalling Rs. 88,40,000/- towards settlement no. N 1997010.

8. On the failure of the plaintiff to pay the amounts due on account of the deeds executed in settlement no. 1997009 and despite written and oral reminders failed to pay the margin. On 17th March, 1997 under the powers vested in it by bye-law no. 16 and regulation 10.9 defendant no. 2 sold the shares purchased by the plaintiff in settlement no. 1997009 which was withheld by it. After adjusting the sale proceedings of Rs. 9,21,36,770/- of the sale of the said shares, the liability of the plaintiff came down to Rs. 69,17,439/-. Defendants in their suit claimed that plaintiff was required to complete the procedure for delivery including endorsement and the transfer deeds so as to enable it to deliver to the members who had purchased them. The defendant asserts that the plaintiff was required to rectify the defects and deliver the shares to defendant no. 2.

9. It has further been asserted that having met the said delivery requirement, defendants 1 and 2 became owners of the shares because plaintiff was unable to honour its contractual obligation. Defendant no. 2 had purchased the same number of shares from the open market on behalf of the plaintiff and delivered them to the buyers thereof. Vide letter of 3rd April, 1997 Sushil Kumar Jain a director of the plaintiff had informed defendant no. 2 that shares in question requiring rectification had been taken over from plaintiffs representative. A complaint even had been lodged with the police. It is asserted that the plaintiff continued to be in illegal possession of the said shares of the State Bank of India and Reliance Industries and have no authority to retain, withheld, dealing with said shares. It is on these broad facts that the above said reliefs claimed have been prayed.

10. The plaintiff filed an application under section 10 of the Code of Civil Procedure seeking stay of the civil suit filed subsequently by the defendants. Learned counsel for the plaintiff highlighted that in both the civil suits the question involved basically is pertaining to the circular of 7th April, 1997 and letter of 26th June, 1997 which has been challenged in the earlier civil suit filed by the plaintiff. Therefore, according to him keeping in view the strict provisions of section 10 of the Code of Civil Procedure the subsequently instituted suit should be stayed. On behalf of defendants 1 and 2 it was highlighted that the subsequently instituted should is totally different in its conception and the relief claimed is also different besides there are different parties and therefore according to the learned counsel strict provision of section 10 of the Code of Civil Procedure cannot be attracted.

11. The difference between section 10 and section 11 of the Code of Civil Procedure is well known. In section 10 of the Code of Civil Procedure the matter in issue in the earlier instituted suit and the subsequently instituted suit should be directly and substantially in issue in the previously instituted suit. Under section 11 of the Code of Civil Procedure mere pendency of the earlier suit which is not material but the civil suit should have been heard and finally decided between the parties. The matter in issue should be directly and substantial in issue in that decision between the parties which had come into being. If the cause of action in the subsequently instituted suit is different in that event the earlier instituted suit will not be a bar for continuation of the subsequently instituted suit.

12. In the case of Mohinder Singh Jubbal v. M/s Grindlays Bank Ltd and ors the previous instituted suit for recovery of loan on basis of goods pledged with the bank and the subsequent suit was filed on basis of the mortgage created by the defendants for payment of the loan advances. It was held that rigours of section 10 CPC are not attracted. A Division Bench of Calcutta High Court in the case of Shaw Wallance & Co. Ltd. v. Bholanath Madanlal Sherawala and ors also had the occasion to deal with the same controversy pertaining to the expression "matter in issue". The answer was provided in the following words:

"13. One of the most essential conditions of section 10 is that the matter in issue in the later suit which is sought to be stayed must be directly and substantially in issue in the earlier suit which is pending in the same or in any other court of concurrent jurisdiction. A mere identity of some of the issues in both the suits is not sufficient to attract this section in view of the law laid down by Sir Ashutosh Mookerjee. Unless the decision of the suit operates as res judicata in the other suit it cannot be said that the matter in issue is "directly and substantially" the same in both the suits. In other words, the decision in one suit must non-suit the other suit before it can be said that the matter in issue in both the suits is directly and substantially the same."

13. At this stage reference can well be made to a decision from the Madras High Court in the case of R. Srinivasan v. Southern PetroChemical Industries Corporation Ltd. . It was held that acid test is that the decision in the earlier instituted suit should operate as res judicata in the subsequently instituted suit. Thereupon the court went into the controversy as to that is the import of the words "matters directly and substantially in issue". The answer had been recorded in paragraph 9 which is being reproduced below for the sake of facility:

"The learned counsel for the respondent has rightly argued that the key words in S. 10 are: "the matter in issue is directly and substantially in issue" in the previously instituted suit. The words "directly and substantially in issue" are used in contradistinction to the words "incidentally or collaterally in issue". That means that S. 10 would apply only if there is identity of the matter in issue in both the suits meaning thereby that the whole of the subject matter in both the proceedings is identical and not merely one of the many issues which arise for determination in the two suits....."

14. In the present case in hand as is apparent from the brief resume of the facts given in the different plaints, the civil suit filed by the plaintiffs is confined to declare the circulars of 7th April, 1997 and the subsequent letter of 26th June, 1997 to be an illegal and thereupon to restrain the defendants not to interfere in the rights of the plaintiff. It is not in controversy that shares involved in both the suits are the same and circular also in the same. The difference pointed as referred to above, is that the defendants 1 and 2 are also seeking custody of the shares, the relief is moulded differently, some of the parties are not identical.

15. It is settled principle of law that merely because there are additional parties will not restrict the provision of section 10 CPC inter se between the parties with which we are presently concerned. It is obvious that the main controversy is pertaining to the same shares and the same circular and the letter. Incidentally if some of the parties are different that will not be itself restrict the court from acting under section CPC. In case the plaintiff succeeds in the suit and the circular and the letter for sake or argument are set aside, the necessary effect would be that it will reflect on the actions of the defendants 1 and 2 and what they are claiming in the subsequently instituted suit. It is certainly in that view of the matter would operates as res judicata and in strict sense, therefore merely because the defendants are claiming custody of the shares or the reliefs are moulded and couched in a different language will not make material difference. In that view of the matter indeed section 10 would come into play.

16. However the main argument advanced on behalf of the defendants 1 and 2 was that even if it be so still keeping in view the nature of the reliefs, the parties being different and the fraud being practiced by the plaintiffs, it would be appropriate that both the suits be tried together rather than stay the subsequently instituted suit of defendants 1 and 2.

17. To this learned counsel for the plaintiff Maxwell Securities Pvt. Ltd. had strong exception and he urged that when there is a special provision in the Code of Civil Procedure in the form of section 10 of the provision of section 151 pertaining to inherent powers of the court shall not be exercised. In support of his argument he relied upon the decision of the Supreme Court in the case of Manilal Mohanlal Shah and ors v. Sardar Sayed Ahmed Sayed Mahmad and Anr. and also on the subsequent decision of the Supreme Court in the case of Manohar Lal Chopra v. Rai Bahadur Rao Raja Seth Hiralal .

18. In the case of Manilal Mohanlal (Supra) the Supreme Court held that inherent powers of the court cannot be invoked to circumvent the mandatory provisions of the court. This indeed is the law and it is obvious from the reading of section 151 CPC. But the main question that still comes up for consideration is as to whether when two suits are before the court it would be appropriate to try them together or not. In that view of the matter the decision in the case of Manilal Mohanlal (supra) is of little avail on behalf of the plaintiff.

19. So far as decision in the case of Manilal Mohanlal (supra) is concerned, indeed reading of the decision as a whole indicates that the cited decision does not come to the rescue of the plaintiff. The Supreme Court referred to Section 151 CPC and thereupon had held:

"....The section itself says that nothing in the Code shall be deemed to limit or otherwise affect the inherent power of the Court to make orders necessary for the ends of justice. In the face of such a clear statement, it is not possible to hold that the provisions of the Code control the inherent power by limiting it or otherwise affecting it. The inherent power has not been conferred upon the Court; it is a power inherent in the Court by virtue of its duty to do justice between the parties before it.

(24) Further, when the Code itself recognizes the existence of the inherent power of the Court, there is no question of implying any powers outside the limits of the Code....."

20. However it went on to consider the controversy as to when the suits are transferred to the other court. Thereupon the Supreme Court held that two suits with respect to similar reliefs could be tried in the other court or that they could be tried together. The findings in this regard of the Supreme Court are:

".....Further, S.22 of the Code provides for the transfer of a suit to another Court when a suit which could be instituted in any one or two or more Courts is instituted in one of such Court. In view of the provisions of this section, it was open to the respondent to apply for the transfer of the suit at Asansol to the Indore Court and., if the suit had been transferred to the Indore Court, the two suits could have been tried together. It is clear, therefore, that the Legislature had contemplated the contingency of two suits with respect to similar reliefs being instituted and of the institution of a suit in one Court when it could also be instituted in another Court and it be preferable, for certain reasons, that the suit be tried in that other Court."

Therefore, it cannot be termed that the cited decision of the Supreme Court in any way helps the plaintiff in the peculiar facts.

21. The only other decision in this regard relied upon by the plaintiff was in the case of Mugli v. Khaliq Dar AIR 1979 J & K 84. The said court had deprecated the practice of invoking the inherent powers of the court in consolidating the suit suits. The case of Mst. Mugli (supra) perhaps is the only decision as would be noticed hereinafter deprecating such a practice. This court in the case of S C Jain v. Bindeshwari Devi had considered the same, taken a view different from the case of Mst. Mugli (supra). It was held that the weight of the judicial authority is otherwise. The precise observations made by this court reads:-

"8.2.2 It is difficult to lay down any straight jacket formula by application of which the Court may distinguish between the cases liable to be stayed under Section 10 or 151 of the CPC or which may expediently be consolidated. It will all depend on the wisdom of the Judge faced with the problem to take a decision guided by judicial experience. Broadly speaking, if consolidation is likely to create complications at the trial or may prejudice rights of the parties either because the issues are not all common or because the parties are not common, the Court may not consolidate the suits. Consolidation may be preferred to stay if the Court may deem it expeditious and advantageous to do so."

22. In fact consistent view as has been noticed above not only is of the Supreme Court but of the other courts that in such like matters if the interest of justice so require the two suits can be directed to be consolidated or tried together.

23. In the case of M/s Bokaro & Rampur Ltd. v. The State of Bihar and Ors. it was held:

"I respectfully concur in the view expressed by the learned Judge and I would like to add further that the question to be considered should also be as to whether or not the non-consolidation of the two or more suits is likely to lead apart from multiplicity of suits to leaving the door open for conflicting decisions on the same issue which may be common to the two or more suits sought to be consolidated. In my view the convenience of the parties and the expenses in two suits are subsidiary to the more important consideration namely whether it will avoid multiplicity of suits and eliminate chances of conflicting decisions on the same point."

24. This court in the case of Vijay Kumar and Ors. v. Manohar Lal and Ors. also while dealing with a similar situation concluded that subsequently instituted could be consolidated and inherent power in give fact could be utilised in this regard. The Gujarat High Court in the case of M/s Sohal Engineering Works, Bhandup Bombay v. Rustam Jehangir Vakil Mills Co. Ltd. also concluded that when there are two suits between the parties and common question arise between the same parties, the court has inherent powers to direct the two suits to be tried together. Same was the view expressed by the Orissa High Court in the case of Guru Prasad Mohanty and Ors. v. Bijoy Kumar Das and of late by this court again in the case of Sardar Pritpal Singh Sabharwal v. Jagjit Singh Sabharwal 1996 III AD (Delhi) 281, it was held that when similar matter is involved it would be appropriate to consolidate the two suits.

25. Once again traveling back to the facts of the case it is patent that basically parties are the same. Though the main dispute is pertaining to the circular and the letter issued by defendant no. 1 but still there are some additional reliefs claimed by defendants 1 and 2 in the subsequently instituted suit. The defendants even are asking for the return of the shares. Consequently for proper adjudication it will not be proper nor in the interest of justice to let the subsequently instituted suit lie in cold storage. In the interest of justice, therefore, would require that both the suits are tried together.

26. Accordingly instead of staying the subsequently instituted suit it is directed that both the suits should be tried together and the earlier instituted suit should be taken as the main suit. Evidence can be recorded in the suit filed by the plaintiff. List it on 20th February, 2002.