Delhi High Court

S.M.V. Agencies Pvt. Ltd. vs M/S. Cross Country Heritage Hotel ... on 11 April, 2013

Author: Rajiv Sahai Endlaw

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

                                          Date of decision: 11th April, 2013.

+            CS(OS) 281/2010 & I.A. No.2055/2010 (u/O 39 R-1 & 2 CPC)

       S.M.V. AGENCIES PVT. LTD.                  ..... Plaintiff
                     Through: Mr. Gagan Gupta and Mr. Saurabh
                              Gupta, Advocates.

                                 Versus

       M/S. CROSS COUNTRY HERITAGE HOTEL
       & ANR                                     ..... Defendants
                    Through: Mr. Pradeep Diwan, Sr. Adv. with
                             Ms. Anupam, Mr. Desh Raj and Mr.
                             Pradeep Desodiya, Advocates.
       CORAM:
       HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

                           JUDGMENT

% 11.04.2013 I.A. No.6070/2011 (of defendants for leave to defend)

1. The plaintiff has sued under Order 37 of the Civil Procedure Code

(CPC), 1908 for recovery of Rs.68 lakhs with interest @ 12% per annum

pleading:

(i) that a document titled "Basis of Negotiation" was executed on

5th February, 2007 between the plaintiff on the one hand and

defendant No.1 through its Managing Director defendant No.2 on the

other hand, whereunder the defendant No.2 offered to transfer 52% of

the share capital held by him in the defendant No.1 and the plaintiff

paid a sum of Rs.50 lakhs to the defendant No.1 as deposit money on

the condition that if the plaintiff after due diligence was not satisfied,

the said amount of Rs.50 lakhs would immediately become

refundable within fifteen days of such intimation and in the event of

satisfactory completion of due diligence, within fifteen days a

detailed Memorandum of Understanding (MoU) shall be signed;

(ii) that the plaintiff was not satisfied with the exercise of due

diligence undertaken and asked for refund of the said sum of Rs.50

lakhs;

(iii) that the defendants have however not refunded the amount;

(iv) that the defendants are liable for interest @ 12% per annum

from the date the amount of Rs.50 lakhs was paid till refund and on

which account a sum of Rs.18 lakhs is due till the institution of the

suit;

hence, the suit for recovery of Rs.68 lakhs.

2. Summons for appearance and thereafter for judgment were issued on

the defendants and leave to defend application has been filed and on which

the counsel for the plaintiff and the senior counsel for the defendants have

been heard.

3. The defendants seek leave to defend on the following grounds:

(a) that the application for summons for judgment is not supported

by valid and proper affidavit inasmuch as the affidavit is attested on

27th August, 2010 and the application was filed in the month of

March, 2011;

(b) that it is a term of the document aforesaid, "both parties agree

not to go to the Court on this Basis of Negotiation" and owing

whereto, the plaintiff is not entitled to maintain this suit on the basis

of the document containing such a clause;

(c) that the document aforesaid was not enforceable unless a

contract between the parties was executed on making payment of

10% of the part payment and after settlement of the other terms and

conditions;

(d) that the plaintiff was bound to complete due diligence within

45 days of signing of the document on 5th February, 2007;

(e) that the plaintiff however did not act on the basis of the said

document and owing whereto, the defendants suffered a set back and

monetary loss;

(f) that the sum of Rs.50 lakhs was adjusted against the losses and

damages suffered by the defendants and the clause that "both parties

agree not to go to the court on this Basis of Negotiation" was inserted

for this reason only i.e. to compensate the defendants for not

negotiating with any other party during the period of 60 days i.e. 45

days of due diligence and 15 days period for execution of the final

agreement with a payment totalling to 10% of the agreed terms and

conditions;

(g) that the plaintiff remained silent for about three years and in

which time the defendants suffered further losses;

(h) that the plaintiff at no point of time conveyed that they were

not satisfied after due diligence;

(i) that owing to default by the plaintiff the defendants could not

pay the dues of the Banks and financial institutions who took over the

properties of the defendant No.1 and auctioned the same at throw

away price; and,

(j) that the real intention of the parties can be gathered only if the

Managing Director of the plaintiff is allowed to be cross-examined by

the defendants.

4. It is the contention of the counsel for the plaintiff at the outset that the

application for leave to defend has not been filed within the prescribed time,

inasmuch as the defendants were served with the summons of judgment on

5th April, 2011 and have filed the application for leave to defend on 18th

April, 2011.

5. The senior counsel for the defendants has however from the calendar

published by the Rohini Court Bar Association shown that this Court was

closed from 9th April, 2011 till 17th April, 2011 and the application was filed

on the re-opening day and is thus within time.

6. Before discussing the arguments made, it is deemed appropriate to

point out that the hearing on the application was commenced on 22 nd

January, 2013 when it was the contention of the counsel for the plaintiff that

the suit under Order 37 of CPC has been filed on the basis of the monies

under the document aforesaid having been advanced by the plaintiff to the

defendants by a cheque and which contention was repelled. However, it

was observed in the order of that date that the plaint suggested the plaintiff

to have sued on the basis of a written agreement but original of which had

not been filed. The matter was then adjourned on the request of the counsel

for the plaintiff.

7. The counsel for the plaintiff has today stated that the submission

made on 22nd January, 2013, of the suit having been filed on the basis of a

cheque vide which monies were advanced to the defendant, was an

erroneous one and the suit has been filed on the basis of a written contract/

agreement within the meaning of Order 37 of CPC i.e. the document titled

"Basis of Negotiation" aforesaid. He has further explained that though the

plaintiff along with the plaint had filed a photocopy of the said document

but neither any objection had been taken by the defendants qua non filing of

original nor was it plea of the defendants in the application for leave to

defend that the document was anything else than as filed by the plaintiff. It

is also informed that the plaintiff as far back as on 24 th August, 2011 had

filed the original document also before this Court but which remained under

objection and was not placed on record and of which the counsel for the

plaintiff did not know and after the order dated 22 nd January, 2013 the

plaintiff has had the original document placed on record. Reliance is placed

on Harbans Lal Vs. Daulat Ram ILR (2007) I Delhi 706 enunciating the

nature of the documents on the basis of which a suit under Order 37 of the

CPC can be maintained.

8. Per contra, the senior counsel for the defendants has argued that the

plaintiff has nowhere in the plaint pleaded that the suit is on the basis of the

document titled "Basis of Negotiation". Reliance in this regard is placed on

Juki Singapore PTE Ltd. Vs. Jay Cee Enterprises Pvt. Ltd. 157 (2009)

DLT 580. It is further argued that for a suit on the basis of a document to be

maintainable, the said document has to be relevant within the meaning of

Section 23 of the Indian Evidence Act; that the said document itself records

that it is not a concluded agreement and is thus not a contract and no suit on

the basis thereof can lie. Attention is invited to Clause K of the said

document whereunder both the parties had agreed to keep the said

agreement and all their dealings confidential and undertaken not to use the

same for purposes other than contemplated by the document. It is argued

that the affidavit accompanying the application for leave to defend does not

verify the cause of action. Reference is made to Neebha Kapoor Vs.

Jayantilal Khandwala AIR 2008 SC 1117 laying down that for obtaining

summary judgment, original documents must be produced and it is argued

that the suit is thus to be treated as an ordinary suit. It is yet further argued

that under Clause H of the document, due diligence was to be completed

within 45 days from the signing of the document on 5th February, 2007 but

the plaintiff did not complete the same within the said time and on account

of which delay, the defendant has suffered losses.

9. The counsel for the plaintiff has rejoined by contending that Order 37

Rule 2(1) of CPC does not require the plaintiff to specify the document on

basis of which the suit is being filed and only requires the plaintiff to plead

that the suit is being filed under Order 37 of CPC and that no relief outside

the ambit of the said provision is claimed in the suit. Reference is made to

A.V.M. Sales Corporation Vs. M/s. Anuradha Chemicals Pvt. Ltd. (2012)

1 SCALE 349 laying down that mutual agreement intended to restrict or

extinguish the right of a party to enforce his/her right under or in respect of

a contract by usual legal proceedings, is void and the parties cannot contract

against a statute. The counsel for the plaintiff has also argued that the

defendants in the rejoinder to the application for leave to defend have

falsely asserted having filed the leave to defend on 11 th April, 2011.

10. The counsel for the defendants at the fag end has also argued that the

decree can only be against the defendant No.1 Company and not against the

defendant No.2 who is the Managing Director of the defendant No.1

Company.

11. I have weighed the rival contentions and, am of the view/find:

(i) That the application for leave to defend was filed within time

on 18th April, 2011 as this Court was closed from 9 th to 17th April,

2011.

(ii) That it is not the requirement of Order 37 that the plaintiff has

to expressly state that the suit is filed on the basis of a written contract

or bill of exchange or a guarantee or a hudi or a promissory note, so

long as from a reading of the plaint it is so decipherable/apparent.

The observations in Juki Singapore PTE Ltd. (supra) have to be read

in the factual scenario of that case. Even in the said judgment,

reference is made to the averments in the plaint and the said judgment

also does not lay down that the plaintiff in a suit under Order 37 of

CPC has to specifically plead as to on the basis of what category of

document within the meaning of Order 37 Rule 1(2) of CPC the suit

lies. The only requirement under Order 37 Rule 2(1) of CPC, is to

plead that the suit is filed under the said provision and that no relief

which does not fall within the ambit of the said provision has been

claimed in the plaint and which has been done in the present case. On

a reading of the plaint in the present case, it is apparent that the suit

has been filed on the basis of a written contract being the document

titled "Basis of Negotiation" dated 5 th February, 2007 between the

parties. The suit thus cannot be said to be not maintainable under

Order 37 of CPC.

(iii) That the plaintiff undoubtedly along with the plaint did not file

the original written contract on the basis of which the suit was filed

but filed only a copy thereof. However, the defendants in the leave to

defend application filed, neither took the plea of the original having

not been filed nor disputed the said written contract. Rather, the

defendants built their own ground for leave to defend on the clauses

of the said contract without filing any other copy of the said

document. Even today, it is not the case of the defendants that the

copy filed is not the correct copy. In fact, the said argument appears

to have been made taking queue from the earlier order dated 22 nd

January, 2013, supra. Moreover, the plaintiff along with its reply to

the application for leave to defend filed the original document which

though remained under objection but has now been got placed on

record. Even in the rejoinder filed by the defendant to the leave to

defend application, no such plea was taken. As far as the dicta of the

Supreme Court in Neebha Kapoor (supra) is concerned, it was a case

where original document on which suit under Order 37 of CPC was

filed was not available till the date of consideration of the application

for leave to defend. What the Supreme Court held in that case was

that the Court can always refuse to exercise its discretion as the

original documents were not produced and can call upon the plaintiff

to prove that the documents are lost. In the present case, the copy of

the contract on which the suit is filed was filed along with the suit and

original has been filed along with the reply to the application for

leave to defend and about the genuineness of which there is no doubt.

Thus, the said objection also has no merit.

(iv) The senior counsel for the defendants also admits that the

defect even if any in verification of the affidavit accompanying the

application for issuance of summons of judgment, is a curable defect.

Reliance in this regard if required can be placed on Uday Shankar

Triyar Vs. Ram Kalewar Prasad Singh (2006) 1 SCC 75 and

Vidyawati Gupta Vs. Bhakti Hari Nayak (2006) 2 SCC 777. Once

that is found to be the position in law, the objection is merely a

technical one and does not come in the way of consideration of the

leave to defend on merits.

(v) Section 23 of the Evidence Act invoked by the defendants is

found to have no application. The same is concerned with the

admissions if made on the condition that evidence of such admission

is not to be given. The senior counsel for the defendants has been

unable to explain as to how the written contract between the parties

can be said to be not relevant or can be said to be an admission.

(vi) Similarly, the argument, of the written contract dated 5th

February, 2007 being not a concluded contract is misconceived. The

same undoubtedly is not a concluded contract insofar as the sale and

purchase of shareholdings is concerned. However, the same is

definitely a concluded contract qua the amount of Rs.50 lakhs which

was agreed to be given by the plaintiff to the defendants pending due

diligence by the plaintiff of the property of the defendants transfer

whereof was under contemplation and which was agreed to be

refunded, upon the plaintiff being not satisfied in due diligence and to

be adjusted in the sale price, upon the plaintiff being so satisfied and a

transfer agreement being signed between the parties. We, in this suit

are concerned with the said sum of Rs.50 lakhs only and are not

concerned with the transfer of the property which was under

contemplation.

(vii) The following clauses of the said written contract in which

plaintiff is described as First Party, defendant No.1 as „Company

CCHL‟ and the defendant No.2 as Second Party, are relevant in this

regard:

"F. At the time of signing this Basis of Negotiations, the First Party has paid Rs.50 lacs vide cheque no.710934, dated on 27-01-2007, drawn on the Punjab and Sind Bank, Industrial Finance Branch located at Madras Hotel Building, Connaught Place, New Delhi 110001, as deposit money to the company CCHL.

G. The first party will commence due diligence and the second party will give full cooperation.

H. The process of due diligence shall be completed within 45 days of signing of this basis of understanding. This agreement shall be automatically dissolved if MOU is not signed within 15 days after that. As the deal price is finalized, the second party will not open negotiations with any other interested buyers during this period, unless both parties mutually agree to dissolve the agreement.

I. In case the first party is not satisfied after the due diligence the Rs.50 lacs as above will be returned by the company immediately, but not later than 15 days without any binding on any side.

J. Once the due diligence process is satisfactorily completed by the first party, a detailed MOU will be signed immediately, at which time the first party will pay 10% of the agreed amount. This money will proportionately be adjusted against shares being transferred to the first party. The earlier paid token will be adjusted in this 10%. The balance amount will be paid up as per agreed terms and conditions at this stage.

K. Both parties jointly agree and confirm that the contents of this deal, all information, data, experience and know-how, documents, secrets, dealings, transactions or affairs of or relating to the First Party, the second party or the transaction („the confidential information‟), shall be kept confidential at all times and that they shall not use any such information other than for the purposes contemplated by this document.

L. Both parties agree not to go to the Court on this Basis of Negotiation."

(viii) The contention of the senior counsel for the defendants is that

though the plaintiff was to complete the due diligence within 45 days

but did not do so and after remaining silent for about three year

demanded back the money.

(ix) The plaintiff undoubtedly in the plaint has not given any date

on which it may have intimated the defendants of it being not

satisfied after the due diligence as to the title of the defendants to the

property, transfer whereof was under contemplation. The plaintiff has

however along with the plaint filed a list of documents along with the

documents which includes a letter dated 10 th September, 2008 of the

plaintiff to the defendants together with proof of dispatch thereof by

registered AD and copy of legal notice dated 27 th October, 2009 got

sent to the defendants demanding back the said amounts. It is not the

case of the defendants that the said documents were not served on the

defendants as is required under Order 37 Rule 3(1) of CPC. The

defendants have in the leave to defend application not controverted

the said documents. For the reason of non traverse by the defendants

of the documents accompanying the suit, the defendants are deemed

to have admitted the same. The said letter dated 10 th September, 2008

also however is much beyond 45 days from 5th February, 2007 which

was to expire on or about 22nd March, 2007. The plaintiff has also

filed the report of the due diligence got conducted by it and which

also though is undated but records that the work of due diligence

commenced on 9th March, 2007 and was completed on 24th March,

2007. It can safely be presumed that the report must have been

prepared sometime thereafter. It thus stands admitted from the

documents of the plaintiff itself that the due diligence extended to

much beyond 45 days from 5th February, 2007;

(x) However Clause H supra of the written contract between the

parties is unequivocal and provides that the said written contract shall

automatically be dissolved if the MOU is not signed within 15 days

after 45 days i.e. by 5 th April, 2007. Though the defendants in the

leave to defend application have pleaded that the plaintiff remained

silent for about three years but that was no reason for the defendants

to await the plaintiff. The defendants have not filed anything to show

that the plaintiff requested for any extension of time. Even if that be

so, it was for the defendants to accept or not to accept the same. The

defendants, after 60 days of 5th February, 2007, under the written

agreement were not required to await the plaintiff any more or to not

open negotiations with any other interested buyers. No merit is thus

found in the plea of the defendants of the defendants owing to the

plaintiff‟s delay, having suffered any loss. The only effect of delay if

any the plaintiff, can be to deprive the plaintiff of interest on the said

amount of Rs.50 lakhs, till the date the plaintiff demanded refund

thereof from the defendants.

(xi) That even if the plea of the defendants were to be accepted, it is

pointed out to the senior counsel for the defendants that there is no

provision in the contract for forfeiture by the defendants of the said

sum of Rs.50 lakhs. Reference in this regard can be made to In Re:

Narendra Dada Agro Industries Ltd. MANU/MH/0239/2006 and

Alfa Bhoj Pvt. Ltd. Vs. NDMC 191 (2012) DLT 548. The senior

counsel for the defendants also agrees that for the losses as claimed to

be suffered, the defendants are required to file a claim against the

plaintiff and the defendants cannot on the basis of its own assessment

of losses, appropriate the monies of the plaintiff. The senior counsel

for the defendants however states that counter claim will be filed after

leave to defend has been granted. There is no reply as to why the

same has not been filed earlier or by way of an independent suit. The

question of limitation would also now come in. The said ground for

leave to defend urged is thus but a moonshine and is not tenable in

law.

(xii) The plea of the defendants on the basis of Clause L supra of the

written contract is also a half-hearted one. The Agreement of the

parties not to go to the Court was relatable to the contemplated

agreement of sale/purchase of property and not to the concluded

agreement qua Rs.50 lakhs. The counsel for the plaintiff has in this

regard rightly relied upon Section 28 of the Contract Act making the

contracts in restraint of legal proceedings void. If Clause L aforesaid

is to be construed as an agreement by the plaintiff not to go to the

Court against the defendants for recovery of sum of Rs.50 lakhs even

if not refunded by the defendants, it would undoubtedly be void.

(xiii) That brings me to the argument made at the fag end, of the

liability being of the defendant No.1 only. Though the counsel for the

plaintiff has not addressed any argument in this regard but I find the

said ground to have been not urged in the leave to defend application

and rightly so having no legs in law to stand thereon. A bare perusal

of the written contract shows that the same though purportedly

between the plaintiff and the defendant No.1 but in fact is between the

plaintiff and the defendant No.2 and it is the defendant No.2 Mr.

Vijay K. Juneja, since deceased and represented by his widow Smt.

Kusuma Juneja, who is described as Mr. V.K. Juneja, the second

party in the said Agreement. The same is also evident from the nature

of the Agreement. The Agreement was in contemplation of transfer

by the defendant No.2 Mr. Vijay K. Juneja of 52% of the equity

held/controlled by him in the defendant No.1 Company to the

plaintiff and not in contemplation of transfer by the defendant No.1

Company of anything to the plaintiff and the defendant No.1

Company was at best a confirmatory party. Rather, at the bottom of

the said Agreement also, it is the said Mr. Vijay K. Juneja who is

described as the second party. In fact the defendants had also got

issued a reply dated 11 th November, 2009 to the legal notice dated

27th October, 2009 got issued by the plaintiff and which reply was on

behalf of Mr. Vijay K. Juneja and not on behalf of the defendant No.1

Company. However, the defendant No.1 also remains a necessary

party inasmuch as the amount taken of Rs.50 lakhs was in favour of

the defendant No.1. The liability for refund of the said amount of

Rs.50 lakhs cannot thus be said to be the defendant No.1 Company

alone but is jointly and severally of both the defendants.