Delhi High Court

Amit Kumar Chopra vs Narain Cold Storage & Allied ... on 4 March, 2014

Author: Sanjeev Sachdeva

*      IN THE HIGH COURT OF DELHI AT NEW DELHI

%                           Order Reserved on: 30th January, 2014
                            Order Pronounced on: 04th March, 2014

+                      IA 16458/2011 in CS(OS) 2293/2010

AMIT K UMAR C HOPRA                                  ..... PLAINTIFF

                               Through:   Mr.Sachin Puri, Mr.Mayank
                                          Wadhwa and Mr.Abhinav
                                          Dang, Advocates

                               versus

NARAIN C OLD STORAGE & A LLIED INDUSTRIES PVT. L TD &
OTHERS                                    ....DEFENDANTS

                               Through:   Ms.Maldeep Sidhu, Adv for
                                          D-2

                                          Ms.Lavisha Kamra, Adv for
                                          D-3

       CORAM:

       HON'BLE MR. JUSTICE SANJEEV SACHDEVA

SANJEEV SACHDEVA, J.

IA No. 16458/2011 (under Order XII Rule 6 CPC on behalf

of the Plaintiff)

1. The Plaintiff has filed the present application under

Order XII Rule 6 of the Civil Procedure Code,1908 (for

short „CPC‟) seeking a decree against the Defendants

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No. 1 and 2 on admissions.

2. As per the Plaintiff, he is engaged in the business of

distribution of packaged and processed drinking water,

soda and allied products.

3. The Defendant No. 1 is stated to be engaged in the

business of processing, packaging and supply of

water, soda and allied products in the name of

"DIRECTOR SPECIAL". The Plaintiff claims to have

been approached by Defendant No.4 as an agent of

Defendants No.1 and 2 for the purposes of distribution

of the water, soda and allied products manufactured

by the said Defendants.

4. The Plaintiff inter alia with some other persons

decided to enter into a partnership to carry out the

business of distribution of packaged and processed

drinking water, soda and allied products under the

name and style of "M/s. Ozone Enterprises". M/s.

Ozone Enterprises entered into a memorandum of

understanding (MOU) with "M/s. Ikon Industries" for

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distributorship of packaged drinking water, soda and

allied products under the name and style of Director

Special (herein referred to as the material). As per the

terms of the MOU the Plaintiff was to be the sole

stockist/wholesale dealer of the said material. M/s

Ozone Enterprises was to make a Security Deposit of

Rs.15,00,000/-.

5. The case of the Plaintiff is that after the

commencement of the MOU dated 16.07.2007 the 2

partners of M/s Ozone Enterprises left the partnership

concern and the Plaintiff decided to continue with the

MOU as a sole proprietor of M/s Swastik Enterprises.

The MOU was modified by letter dated the 06.09.2007.

The Plaintiff paid the amount of the Security Deposit,

deposited with M/s. Ikon industries by the erstwhile

partners of M/s Ozone enterprises to them and

accordingly the Security Deposit was acknowledged

by Defendant No. 1 and 2 solely in favour of the

Plaintiff.

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6. The Plaintiff claims to have placed a purchase order

on Defendant No.2 and collected the material from the

said Defendant for distribution. The Plaintiff thereafter

requested for more material however the said

Defendant never supplied the same. Somewhere in

the month of September 2007 the Plaintiff became

aware that the said Defendant was supplying material

to M/s Raju agency in contravention to the terms of the

MOU. As per the information of the Plaintiff the

Defendant was supplying material to other parties

other than the Defendant No. 3 as well. The Plaintiff

contends that there was a breach of the terms of the

MOU by the Defendants and accordingly the Plaintiff

sought for a refund of the Security Deposit along with

damages for the sum of Rs 5,00,000/-. The Defendant

No. 2 through the Defendant No. 4 is stated to have

given a cheque for Rs. 5,00,000/- and promised to pay

the balance amount within 3 months.

7. This cheque when presented to the bankers was

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dishonoured. The Plaintiff thus filed the present suit for

recovery of the said amount of Rs 20,00,000/-with

interest thereon.

8. The Defendant No.2 has disputed the claim of the

Plaintiff. As per the written statement filed by the said

Defendant the agreement dated 16.07.2007 is

admitted however as per the Defendants no firm by

the name of M/s Ozone enterprises had come into

existence and the 3 persons who were doing business

together had serious differences and disputes and

accordingly it was only the Plaintiff who was left

behind.

9. The said Defendant admits the receipt of the Security

Deposit of Rs 15,00,000/- however contends that in

terms of the agreement the Defendant continued to

manufacture the packaged drinking water and soda.

The Plaintiff as per the agreement had to pick up

75,000 packages per month. To meet the demands of

the Plaintiff, the Defendant started work in two shifts.

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The shelf life of the packaged water and soda is only 3

months. The Defendants were not aware of the

dispute between the partners of the firm M/s Ozone

enterprises, they kept on manufacturing the packaged

water and soda. The Plaintiff never informed the

Defendant about the disputes. As the Plaintiffs were

not lifting the manufactured stock, the Defendant

served a notice on the Plaintiff cancelling the

agreement and stating that the Security Deposit was

being forfeited. It is only when the cancellation notice

was served that the Plaintiff informed about the

dissolution of the partnership firm. Despite the service

of the notice the Plaintiff did not lift any stock and the

Defendant had to throw soda and manufactured water.

After the service of the cancellation notice the Plaintiff

persuaded the Defendant to sign the letter dated

20.08.2007. As per the Defendants the Plaintiff never

made any demand for the supply of material that was

manufactured by the Defendant. The Plaintiff had set

up the Defendant No.3 to buy stocks from the

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Defendant in small quantities so that the ground for

breach of the agreement could be set up. The

Defendant denies having agreed to refund the Security

Deposit that stood forfeited. The Defendant denies

having authorized any person to give any cheque to

the Plaintiff. As per the Defendant on account of the

breach by the Plaintiff the Defendant's manufacturing

unit had to be closed down and he had to pay huge

loan liability amount to the bank for which the factory

had to be sold. The Defendant had obtained a

franchisee for the product Director‟s Special. The

Defendant claims to have forfeited the Security

Deposit due to the default of the Plaintiff.

10. The Defendant No. 4 in his written statement with

respect to the cheque of Rs 5,00,000/- has contended

that the Defendant No. 4 did not know the Plaintiff but

knew the father of the Plaintiff as he had friendly

relations with him for last 20 years. The Defendant No.

4 along with a common friend had gone to inquire

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about the health of the father of the Plaintiff and on the

request of the father of the Plaintiff he had agreed to

invest in the business of the Plaintiff and had issued

him a cheque for the same. Subsequently however the

father of the Plaintiff was not happy with the conduct

of the Plaintiff and he did not want the Defendant No.

4 to be involved with the Plaintiff in any manner

whatsoever and the Plaintiff had refused to return the

cheque so he requested the Defendant No. 4 to stop

the payment of the cheque.

11. The Plaintiff in the above premise filed the present

application under Order XII Rule 6 praying for passing

of a decree for the sum of Rs15,00,000/-. The Plaintiff

in this application contends that perusal of the written

statement of Defendant No. 2 would show that there is

no denial of the material submissions made by the

Plaintiff. He further contends that there is no forfeiture

clause and the amount of Rs15,00,000/- given as

Security Deposit was to be refunded as per the

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agreement. Since the Security Deposit has been

admitted to have been received the same should

either be refunded or adjusted in accordance with

mutual agreement. As there is no forfeiture clause for

forfeiture of the Security Deposit the same has to be

refunded.

12. The Defendant No. 2 has contended that the written

statement filed by the Defendant does not contain any

admission of fact and raises a number of factual and

legal disputes which can be determined only after the

trial of the suit. It is further contended that on account

of the breach of the Plaintiff, the Defendant No. 2 has

suffered substantial loss and the Security Deposit has

been forfeited.

13. Order XII Rule 6 of the Code of Civil Procedure lays

down as under:-

"Judgment on admissions-(1) Where admissions of fact have been made either in the pleading or otherwise, whether orally or in writing, the Court may at any stage of the suit,

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either on the application of any party or of its own motion and without waiting for the determination of any other question between the parties, make such order or give such judgment as it may think fit, having regard to such admissions.

(2) Whenever a judgment is pronounced under sub-rule (1), a decree shall be drawn up in accordance with the judgment and the decree shall bear the date on which the judgment was pronounced."

14. The object of Order XII Rule 6 is to enable a party to

obtain a speedy judgment to the extent of the

admissions of the Defendant to which relief the

Plaintiff is entitled to. The rule permits the passing of

the judgment at any stage without waiting for

determination of any other question. It is a settled

proposition of law that before a judgment can be

passed under Order 12 Rule 6, the admission must be

clear, unambiguous, unconditional and unequivocal.

15. In UTTAM SINGH D UGGAL & CO. LTD. V.U NION B ANK OF

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INDIA & ORS. 2000 (7) SCC 120 the Supreme Court

has laid down as under:-

"12. As to the object of Order 12 Rule 6, we need not say anything more than what the legislature itself has said when the said provision came to be amended. In the Objects and Reasons set out while amending the said Rule, it is stated that "where a claim is admitted, the court has jurisdiction to enter a judgment for the Plaintiff and to pass a decree on admitted claim. The object of the Rule is to enable the party to obtain a speedy judgment at least to the extent of the relief to which according to the admission of the Defendant, the Plaintiff is entitled". We should not unduly narrow down the meaning of this Rule as the object is to enable a party to obtain speedy judgment. Where the other party has made a plain admission entitling the former to succeed, it should apply and also wherever there is a clear admission of facts in the face of which it is impossible for the party making such admission to succeed."

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16. The Supreme Court has further in the case of HIMANI

ALLOYS L TD. V. TATA STEEL L TD. 2011 (11) JT 222 laid

down as under:

"10. It is true that a judgment can be given on an admissioncontained in the minutes of a meeting. But the admission should be categorical. It should be a conscious and deliberate act of the party making it, showing an intention to be bound by it. Order 12 Rule 6 being an enabling provision, it is neither mandatory nor peremptory but discretionary. The court, on examination of the facts and circumstances, has to exercise its judicial discretion, keeping in mind that a judgment on admission is a judgment without trial which permanently denies any remedy to the defendant, by way of an appeal on merits.

Therefore unless the admission is clear, unambiguous and unconditional, the discretion of the Court should not be exercised to deny the valuable right of a defendant to contest the claim. In short the discretion should be used only when there is a clear admission which can be acted upon. (See also Uttam

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Singh Duggal & Co. Ltd. vs. United Bank of India [2000 (7) SCC 120], Karam Kapahi vs. Lal Chand Public Charitable Trust [2010 (4) SCC 753] and Jeevan Diesels and Electricals Ltd. vs. Jasbir Singh Chadha [2010 (6) SCC 601]. "

17. As per the law laid down by the Supreme Court for a

Judgment to be passed on admission, the admission

has to be clear, unambiguous and unequivocal. It is an

enabling provision, it is neither mandatory nor

peremptory but discretionary. The judicial discretion,

has to be exercised keeping in mind that a judgment

on admission is a judgment without trial which

permanently denies any remedy to the defendant, by

way of an appeal on merits. The valuable right of a

defendant to contest the claim should not be denied

unless the admission is clear, unambiguous and

unconditional.

18. The Defendant though has admitted the receipt of the

Security Deposit but it has raised a dispute about the

refund of the Security Deposit. As per the Defendants

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the Plaintiff is in breach of the agreement on account

of which the Security Deposit has been forfeited.

There is no admission by the Defendants in the written

statement that they are liable to refund the Security

Deposit. The forfeiture of the Security Deposit is

alleged to have been done on account of the failure of

the Plaintiff to comply with the terms of the agreement

and to lift the material that was manufactured by the

Defendants at the request of the Plaintiff. The

Defendants have alleged that the breach of the

Plaintiff resulted in a substantial loss to the

Defendants. On account of the loss suffered by the

Defendants due to breach of the Plaintiff the

Defendants forfeited the Security Deposits. There is

thus no clear admission that is unequivocal,

unambiguous or unconditional. As the admission of

receipt of Security Deposit is coupled with the plea

that the Security Deposit has been forfeited on

account of breach by the Plaintiff, there is no clear

admission in favour of the Plaintiff that can be acted

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upon. The Plaintiff is thus not entitled to a decree on

admission.

19. Learned counsel for the Plaintiff has further contended

that there is no clause for forfeiture of Security

Deposits and as per the agreement the Security

Deposit was either to be refunded or to be adjusted in

accordance with mutual consent. I find no merit in this

contention. The amount of Rs.15,00,000/- deposited

by the Plaintiff with the Defendants was not an

advance. The said amount has been described as

"Security Deposit". The very fact that the party has

described the deposit as Security Deposit prima facie

lends credit to the submission of the counsel for the

Defendant that the Security Deposit was a deposit

made by the Plaintiff with the Defendants for due

performance of the agreement and as there was a

breach committed by the Plaintiff the said amount was

liable to be forfeited. The fact whether the Security

Deposit could or could not have been forfeited has to

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be tested at the trial.

20. Coming to the plea of the Plaintiff that the Defendants

cannot claim a setoff of the amount of Rs.15,00,000/-

as the setoff has not been lawfully claimed in the

written statement.

21. The Supreme Court in the case of JITENDRA KUMAR

KHAN V. PEERLESS GENERAL FINANCE & INVESTMENT

CO. L TD. 2013 (8) SCC 769 has laid down as under:

11........To appreciate the said issue it is relevant to understand what is the requirement of set-off in the Code. Order VIII Rule 6 deals with set-off. It reads as follows:-

"6. Particulars of set-off to be given in written statement. - (1) Where in a suit for the recovery of money the defendant claims to set-off against the plaintiff's demand any ascertained sum of money legally recoverable by him from the plaintiff, not exceeding the pecuniary limits of the jurisdiction of the Court, and both parties fill the same

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character as they fill in the plaintiff's suit, the defendant may, at the first hearing of the suit, but not afterwards unless permitted by the Court, present a written statement containing the particulars of the debt sought to be set- off.

(2) Effect of set-off. - The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Court to pronounce a final judgment in respect both of the original claim and of the set-off; but this shall not affect the lien, upon the amount decreed, of any pleader in respect of the costs payable to him under the decree.

                       (3)     The   rules   relating    to   a    written
                       statement by a defendant apply                   to a

written statement in answer to a claim of set-off."

12. On a reading of the aforesaid Rule it is noticeable that certain conditions precedent are to be satisfied for application of the said

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Rule. Two primary conditions are that it must be a suit for recovery of money and the amount sought to be set-off must be a certain sum. Apart from the aforesaid parameters there are other parameters to sustain a plea of set-off under this Rule. As far as equitable set- off is concerned, it has been enunciated in the case of Clark v. Ratnavaloo Chetti[2 M.H.C.R. 296 (1865)] that the right of set-off exists not only in cases of mutual debits and credits, but also where cross-demands arise out of the same transaction. The said principle has been reiterated by the Calcutta High Court in Chishlom v. Gopal Chander[ILR 16 Cal 711 (1889)].

13. In Raja Bhupendra Narain Singha Bahadur v. Maharaj Bahadur Singh and others[AIR 1952 SC 782] it has been opined that a plea in the nature of equitable set-off is not available when the cross-demands do not arise out of the same transaction and not connected in its nature and circumstances. It has been further stated therein that a wrongdoer who has wrongfully withheld moneys belonging to

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another cannot invoke any principles of equity in his favour and seek to deduct therefrom the amounts that have fallen due to him. There is nothing improper or unjust in telling the wrongdoer to undo his wrong, and not to take advantage of it.

14. In M/s. Lakshmichand and Balchand v. State of Andhra Pradesh[(1987) 1 SCC 19], this Court has ruled that when a claim is founded on the doctrine of equitable set-off all cross-

               demands are            to     arise   out    of    the    same
               transaction or               the      demands       are     so

connected in the nature and circumstances that they can be looked upon as a part of one transaction.

15. In Union of India v. Karam Chand Thapar and Bros. (Coal Sales) Ltd. and others[(2004) 3 SCC 504], while referring to concept of set-off, this Court has stated thus: -

"15. "Set-off" is defined in Black's Law Dictionary (7th Edn., 1999) inter alia as a debtor's right to reduce the amount of a debt by any sum the creditor owes

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the debtor; the counterbalancing sum owed by the creditor. The dictionary quotes Thomas W. Waterman from A Treatise on the Law of Set-Off, Recoupment, and Counter Claim as stating:

                       "Set-off      signifies    the   subtraction      or
                       taking away         of     one demand        from

another opposite or cross-demand, so as to distinguish the smaller demand and reduce the greater by the amount of the less; or, if the opposite demands are equal, to extinguish both. It was also, formerly, sometimes called stoppage, because the amount to be set off was stopped or deducted from the cross-demand"."

Thereafter, the learned Judges referred to Sub-rule (1) of Rule 6 of Order VIII and proceeded to opine thus: -

"What the rule deals with is legal set-off.

The claim sought to be set off must be for an ascertained sum of money

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and legally recoverable by the claimant. What is more significant is that both the parties must fill the same character in respect of the two claims sought to be set off or adjusted. Apart from the rule enacted in Rule 6 abovesaid, there exists a right to set-off, called equitable, independently of the provisions of the Code. Such mutual debts and credits or cross-demands, to be available for extinction by way of equitable set-off, must have arisen out of the same transaction or ought to be so connected in their nature and circumstances as to make it inequitable for the court to allow the claim before it and leave the defendant high and dry for the present unless he files a cross-suit of his own. When a plea in the nature of equitable set-off is raised it is not done as of right and the discretion lies with the court to entertain and allow such plea or not to do so."

16. From the aforesaid enunciation of law it is

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quite clear that equitable set-off is different than the legal set-off; that it is independent of the provisions of the Code of Civil Procedure; that the mutual debts and credits or cross- demands must have arisen out of the same transaction or to be connected in the nature and circumstances; that such a plea is raised not as a matter of right; and that it is the discretion of the court to entertain and allow such a plea or not. The concept of equitable set-off is founded on the fundamental principles of equity, justice and good conscience. The discretion rests with the court to adjudicate upon it and the said discretion has to be exercised in an equitable manner. An equitable set-off is not to be allowed where protracted enquiry is needed for the determination of the sum due, as has been stated in Dobson & Barlow v. Bengal Spinning & Weaving Co.[ (1897) 21 Bom 126] and Girdharilal Chaturbhuj v. Surajmal Chauthmal Agarwal[AIR 1940 Nag 177].

22. As per the JITENDRA KUMAR K HAN CASE (SUPRA)

equitable set-off is distinct from the legal set-off as

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envisaged by Order VIII rule 6 of the Code. Equitable

set-off is different than the legal set-off and it is

independent of the provisions of the Code of Civil

Procedure. However for claiming equitable set-off it

must be established that the mutual debts and credits

or cross-demands must have arisen out of the

same transaction or are connected in the nature and

circumstances. The Plea of equitable set-off is raised

not as a matter of right but it is within the discretion

of the court to entertain and allow such a plea or

not. The concept of equitable set-off is founded on

the fundamental principles of equity, justice and good

conscience. The discretion rests with the court to

adjudicate upon it and the said discretion has to be

exercised in an equitable manner.

23. The Delhi High Court in the case of M/S CRB C APITAL

MARKETS L TD. V. SMT. BIMLA DEVI SAHNEY 2005 (121)

DLT 471 has laid down as under:

"Even on equitable grounds set-off may be allowed. Principles of equitable set-off is

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recognised in Rule 6 of Order VIII CPC. The essence of such a claim is that there must be some connection between the plaintiff claim for a debt and the defendant's claim to set-off, which will make it equitable to dry up the defendant to a separate suit. In those cases where cross demands arise out of the same transaction or are so connected in their nature and circumstances that can be looked upon as part of one transaction, equitable set-off is permissible. This principle is made applicable even in those cases where the claim of the defendant is for an unascertained sum like that of damages but arising out of same transaction."

24. As per the CRB CAPITAL CASE (SUPRA) equitable set-