Delhi High Court
Rajendra Singh Rathore vs Delhi Metro Rail Corporation on 28 May, 2014
Author: Najmi Waziri
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of Decision: 28.05.2014
+ CM(M) 1117/2012
RAJENDRA SINGH RATHORE ..... Petitioner
Through: Mr. Tushar Singh, Adv.
versus
DELHI METRO RAIL CORPORATION ..... Respondent
Through: Mr. B. L. Wali, Adv.
CORAM:
HON'BLE MR. JUSTICE NAJMI WAZIRI
% MR. JUSTICE NAJMI WAZIRI
1. The present petition has been preferred by the petitioner under
Article 227 of the Constitution of India against the order dated 24th
September, 2012 ("impugned order") of the Additional District
Judge - I, Patiala House Courts, New Delhi ("Trial Court"). The
impugned order came to be passed upon an application under Order
XXXVII rule 4 ("Application") of the First Schedule to the Code of
Civil Procedure ("Code") by the petitioner (who was defendant) in
Suit 281/11 ("Suit"), which was filed under Order XXXVII of the
Code. By the impugned order, the learned Trial Court rejected the
Application, holding that the appellant has failed to demonstrate any
special circumstances justifying setting aside the ex-parte decree dated
7th December, 2011.
2. Although extensive arguments were made by the respondent as to the
maintainability of the petition, this Court finds it unnecessary to
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consider the same in detail. The petitioner has preferred the petition
under Article 227 to contend, primarily, that (i) the summons was
actually never served upon him and (ii) the Suit was not maintainable
and ought to not be considered under Order XXXVII of the Code.
The respondent contended that the petition is not maintainable
inasmuch as an appeal would be maintainable against the decree. This
Court does not wish to opine on whether an appeal would have been
maintainable against the impugned order, although the Rajasthan
High Court has, in one matter, held the same in the negative.1 The
proceedings having been instituted under Article 227, this Court shall
consider the same under the said provision, while bearing in mind the
inherent as well as self-imposed limitations on the powers of
superintendence, and refrain from converting itself into a court of
appeal.2
Facts
3. The genesis of the dispute, according the Suit, can be traced to an
agreement in the form of a letter of offer from the respondent to the
petitioner, dated 16th July, 2010 ("letter of offer"). The letter offered
to the petitioner an appointment to the position of Executive Trainee
(Civil) in the respondent's organisation, and to undergo a course for a
Post-Graduate Diploma in Metro Technology and Management, at
the Indian Institute of Technology, Delhi. The training was to be at
the risk and cost of the respondent, who further offered an amount
of ` 25,000/- (Rupees twenty five thousand only) per mensem as
1 Mohan Lal v Om Prakash, AIR 1989 Raj 138, at p. 184.
2 Surya Devi Rai v Ram Chander Rai & Ors., (2003) 6 SCC 675.
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stipend for the duration of the training. The letter of offer further
provided that upon successful completion of the training, the
petitioner shall be appointed as Assistant Manager (Civil) at a pay
scale of ` 26,000 - 46,500/- (Rupees twenty six thousand to forty six
thousand five hundred only) by issuance of a formal letter of
appointment ("appointment assured").
4. The letter of offer contained certain other clauses that are relevant to
the dispute:
4.1. That the petitioner shall execute a deed, termed as a "bond",
binding himself to serve the respondent for a period of five
years from his date of joining the course. Further, in the
eventuality of the petitioner being dismissed for serious misconduct,
the bond shall be forfeit.
4.2. That the petitioner ought to obtain the Diploma by scoring the
minimum percentage of marks or more, as required by the
Institution. If the petitioner fails to secure the minimum
percentage required to obtain the Diploma, he will not be
provided the appointment assured. The petitioner, in this
eventuality, ought to pay to the respondent an amount of `
5,00,000/- (Rupees five lakh only), which is termed as "bond
amount".
4.3. That the petitioner ought to maintain inter alia discipline, good
conduct, and 100% attendance at the institution for the duration
of the course; absence, if any, ought to be authorised by the
respondent. In case anything adverse is received from the
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institution in respect of the petitioner's conduct or discipline,
the petitioner may be expelled from the course sans assignment
of reasons for the expulsion. In this eventuality as well, the
petitioner ought to pay the respondent an amount of `
5,00,000/- (Rupees five lakh only), which is termed as "bond
amount".
4.4. That if any declaration or information furnished by the
petitioner is found to be false or incorrect, or if any material
information is found to have been wilfully suppressed, the
petitioner's candidature shall be liable for termination without
prior notice and sans assignment of any reason for the
termination. In this eventuality as well, the bond amount shall
stand forfeit; further the respondent shall also have the liberty to
initiate further proceedings in law.
5. Admittedly, the petitioner expressed his acceptance of the terms of
the letter of offer on 19th July, 2010. Further, a deed dated 16th July,
2010 was executed by the petitioner in favour of the respondent
conditionally undertaking, to pay to the respondent an amount of `
5,00,000/- (Rupees five lakh only), upon demand. The condition for
the undertaking was that amount shall be payable towards expenses
incurred by the [respondent] in recruiting, placing and training the petitioner, if
the petitioner were to inter alia either (a) abandons, fails to report for,
or does not secure the minimum percentage in the course for
obtaining the Diploma, or (b) fails to join duty or resigns from
employment of respondent or is terminated from service for any kind
of misconduct within five years from the date of joining the course.
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6. It is not controverted that the petitioner refrained from attending
certain, if not all, lectures and other programmes of the course. It is
also not controverted by any specific traverse of the pleadings that
letters were sent to the respondent calling upon him to return to and
attend the course, which he refrained from responding to. Eventually,
the Suit was filed under Order XXXVII of the Code, claiming
payment of the amount of ` 5,00,000/- (Rupees five lakh only) as
liquidated damages for breach of the contract stated to have been
subsumed in the letter of offer, which was accepted.
7. Upon the Suit being filed, the Trial Court directed service of
summons of the same by ordinary process as well as by Registered
Post. The respondent thus attempted service of summons by ordinary
process through the process server, as well as by Registered Post. The
summons served through Registered Post was returned with a
notation that it was refused on 23rd November, 2011. Regarding this
refusal as sufficient service, the Court proceeded to decree the Suit.
By its order dated 7th December, 2011, the Suit was decreed ex parte
and the respondent was awarded the amount of ` 5,00,000/- (Rupees
five lakh only), with costs and interest pendente lite and future at 8% per
annum.
8. Thereafter, on 20th December, 2011, the petitioner received the
summons dispatched through the process server. Upon attempting to
file his appearance pursuant to the summons, it appears that the
petitioner discovered the existence of the ex parte decree against him.
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He thereafter filed the Application praying that the decree be set
aside. His submissions, inter alia, were that:
8.1. The summons by the Registered Post was never received /
refused by the petitioner; they were never served upon the
petitioner.
8.2. The summons was served through process server only on 20th
December, 2011, and the time for filing application seeking
leave to defend ought to be calculated from the latter date.
8.3. The respondent had played a fraud upon the petitioner and thus
induced him to execute the deed of 16th July, 2010 when the
letter of offer was provided for his consideration and acceptance
only on 19th July, 2010.
8.4. The deed of 16th July, 2010 has no operation or force in the eyes
of law, inasmuch as the contract for which it was to be
collateral, being the letter of offer, was accepted only on 19th
July, 2010.
8.5. That a claim for damages, liquidated or otherwise, will not be
maintainable under Order XXXVII as a trial is necessary to
prove damage and extent of damage before damages can be
decreed.
9. The respondent filed a reply to this application and opposed the
application on merits.
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The impugned order
10. The Trial Court heard the parties on the issue and then passed the
impugned order rejecting the Application. It reasoned that:
10.1. There is no reason to doubt the report of the postal department
that the summons was served upon the petitioner, who refused
service thereof, on 23rd November, 2011.
10.2. The petitioner has not made any submission as to the breach of
the contract. To the contrary, he has only contended that the
Suit is not maintainable under Order XXXVII.
10.3. The respondent had provided a stipend of ` 25,000/- (Rupees
twenty five thousand only) per mensem and has expended towards
conducting selection process, in procuring admission in the
institution in order to have a trained hand employed for a
specialised job and reap the benefit of the investment for a
minimum period of five years. Given the same, the loss incurred
by not having the trained hand for the specialised job is a loss
for which money would not form adequate recompense.
10.4. The sum of ` 5,00,000/- (Rupees five lakh only), which included
expenses for selection, payment of stipend, procuring admission,
paying educational expenses and for loss of services for a period
of five years cannot be termed as exorbitant.
10.5. The amount, hence, is a reasonable pre-estimate of the likely
damage to arise from a breach of the contract, i.e., liquidated
damages. The same is not an amount specified in terrorem, i.e., it
is not a penalty.
CM(M) 1117/2012
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10.6. Since section 74 of the Indian Contract Act, 1872 ("Act")
provides that a party suffering damage is entitled to reasonable
compensation, whether or not actual damage or loss is proved,
provided it is not a penalty, respondent is entitled to the
liquidated damages of ` 5,00,000/- (Rupees five lakh only).
10.7. Thus, no special circumstances warranting the setting aside of
the ex parte decree have been shown by the petitioner.
Contentions and Analysis
11. Aggrieved by this impugned order, the petitioner has preferred the
instant petition before this Court. The Court issued notice on the
petition on 9th October, 2012 and the respondent has entered
appearance through Counsel and filed its reply as well. The impugned
order was stayed by the said order and the stay has continued till date.
The Counsels for both parties were heard and the Court took its time
for consideration.
As to service of summons
12. The first of the petitioner's contention has been that the summons
has not been served upon him by Registered Post. Petitioner, through
counsel, further contended that where a defendant states on affidavit
that he has not been served, the matter ought to be put to trial and
the onus of proof shifts to the plaintiff as to whether the defendant
was indeed served with the summons. In support of this contention,
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reliance has been placed on Meghji Kanji Patel v Kundanman Chamanlal
Mehtani,3 and on Shiv Dutt Singh v Ram Dass.4
13. The impugned order, on this contention, observed that although the
tenant has stated on oath/affirmation that the summons were not
served upon him on 23rd November, 2011, the material on record -
the returned envelope with the notation of refused - indicates that the
petitioner was indeed served. It observed that the petitioner has not
given any reasons for its disbelieving the report of the postal
authority - an independent agency. It is this observation and the
refusal to accept the statement of the petitioner on oath/affirmation
and thereby shifting the onus of proof upon the respondent in respect
of the service of summons that the petitioner impugns at the first
instance. The contention of the petitioner, to the mind of this Court
has the effect of stating that as soon as a defendant states on affidavit
that he has not been served, the Court is stripped of any discretion
and is bound to presume that the defendant is not served unless the
plaintiff files conclusive proof of it having indeed been served.
14. Needless to say, this Court finds itself unable to agree with this
contention. It is undeniable that section 114 of the Evidence Act,
1872 and section 27 of the General Clauses Act, 1897 posit a
presumption - the former de facto and the latter de jure - in favour of
service of the summons in a matter like the present. It is also
incontrovertible that where the defendant states on oath/affirmation
3 AIR 1968 Bom 387.
4 AIR 1980 All 280.
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that the summons has not been served, it would tend to rebut the
presumption.5 However, this cannot be extended to contend - as was
sought to be done in this case - that the Court was bound to accept
the statement on oath/affirmation. Nor can it be extended to
contend that upon the mere filing of an affidavit stating that the
summons is not served, the parties shall be relegated to a trial on the
issue.
15. By no stretch of imagination can it be stated that the judicial mind of
the judge ought to function as an automaton because a party has
stated as to something on oath/affirmation. A judge, at all stages of a
matter, is required to discharge judicial functions after application of
judicial mind to the matter before him. In such circumstances, it is
doubtless that a judge before whom the defendant files an affidavit
has the power to consider whether the statement in the affidavit is to
be believed, a fortiori when there is material on record contrary to the
statement. The various authoritative pronouncements on this issue
ought to also be read to indicate the same; the presumption in fact
under section 114 of the Evidence Act, 1872 and the presumption in
law under section 27 of the General Clauses Act, 1897 are susceptible
to being rebutted by a statement on oath/affirmation - however not
every statement on oath/affirmation serve to rebut the presumptions.
In every such case, the discretion inherent in every judge discharging
5 Nirmalabala Debi v Provat Kumar Basu, [1947-48] 52 CWN 659; Appabhai Motibhai v Laxmichand
Zaverchand & Co., AIR 1954 Bom 159; Sushil Kumar Chakravarty v Ganesh Chandra Mitra, AIR 1958 Cal
251; Chhaya Debi v Lahoriram Prashar, [1962-63] 67 CWN 819; Meghji Kanji Patel v Kundanman Chamanlal
Mehtani, supra, at n. 3; Jagat Ram Khullar v Battu Mal, 1975 RLR 523 : AIR 1975 Del 111; Puwada
Venkateswara Rao v Chidamana Venkata Ramana, (1976) 2 SCC 409; Shiv Dutt Singh v Ram Dass, supra, at
n. 4.
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judicial functions ought to weigh the circumstances, the presumption
allowable in fact, the presumption allowable in law and the statement
on oath/affirmation and decide which ought to prevail. It is doubtless
that the statement on oath/affirmation would ordinarily gain
precedence over all else, but the judge shall have the discretion to -
for sufficient and sound reasons - disbelieve the statement on
oath/affirmation and require further reasons or better proof of the
statement sworn to.
16. The Court finds support in its above opinion in various reported
cases.6 Speaking for the Division Bench, KC DAS GUPTA J. (as he
then was), in Sushil Kumar Chakravarty v Ganesh Chandra Mitra,7
observed:
"(5) ...If the Court chooses to make a presumption under sec. 114 of the
Evidence Act, the Court is entitled to hold that this is the correct statement subject
to this that if there is evidence to the contrary and that evidence is believed by the
Court, the presumption must be held to be rebutted."
(Emphasis supplied)
17. Answering in the negative the question referred to it of whether it is
incumbent on the plaintiff to prove the endorsement of refusal on the notice sent by
registered post by producing the postman or other evidence in case the defendant
denies service on him, SD KHARE J., speaking for the Full Bench of the
Allahabad High Court, observed:
"28. ...In the absence of proof to the contrary, it will be presumed that the refusal
had been made by the tenant to whom the registered letter was correctly addressed
6 Sushil Kumar Chakravarty v Ganesh Chandra Mitra, ibid.; Ganga Ram v Smt. Phulwati, AIR 1970
All 446 (FB); Puwada Venkateswara Rao v Chidamana Venkata Ramana, ibid.
7 Sushil Kumar Chakravarty v Ganesh Chandra Mitra, supra, at n. 5, p. 252.
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at the time when the letter could be expected to reach him in the ordinary course."8
(Emphasis supplied)
18. This view finds support even from the Supreme Court in the oft cited
judgement of MH BEG J. (as he then was) in Puwada Venkateswara Rao
v Chidamana Venkata Ramana,9 albeit in his obiter dictum. Speaking for
the three judge bench, while reconciling the ostensibly divergent
views of the Bombay High Court and the Calcutta High Court on this
issue, he observed:
"10. The two decisions are reconcilable. The Calcutta High Court applied a
rebuttable presumption which had not been repelled by any evidence. In the
Bombay case, the presumption had been held to have been rebutted by the evidence
of the defendant on oath so that it meant that the plaintiff could not succeed
without further evidence. The Andhra Pradesh High Court had applied the ratio
decidendi of the Bombay case because the defendant-appellant before us had
deposed that he had not received the notice. It may be that, on a closer
examination of evidence on record, the Court could have reached the conclusion
that the defendant had full knowledge of the notice and had actually refused it
knowingly. It is not always necessary, in such cases, to produce the postman who
tried to effect service. The denial of service by a party may be found to be incorrect
from its own admissions or conduct..."10
(Emphasis supplied)
19. Thus, there was no error of jurisdiction committed by the Trial Court
in not automatically relegating the parties to a trial on the issue of
whether the summons were served on 23rd November, 2011. The
Trial Court observed that the remark by the postal department - that
the petitioner refused to accept service of the summons - is a
statement made by an independent authority and that the petitioner
has not given any reason to disbelieve the same. This, to the mind of
the Court, is the Trial Court's expression of its disbelief of the
8 Ganga Ram v Smt. Phulwati, AIR 1970 All 446 (FB), supra, at n. 6, p. 451.
9 Puwada Venkateswara Rao v Chidamana Venkata Ramana, supra, at n. 5.
10 Ibid., at p. 412.
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statement of the petitioner on oath/affirmation, in exercise of its
discretion. This view - of disbelieving a bald statement on
oath/affirmation as to non-service of summons when the remark by
the postal department is that service was refused - is a reasonable
view and is not unprecedented. The observations of VIKRAMAJIT SEN
J. (as he then was) in Industrial Medical Engineers & Ors. v Anil Nijhawan
& Anr.,11 on similar facts, is particularly instructive in this regard:
"3. It cannot be gainsaid that the Court should be cautious and slow to proceed to
adjudicate upon a lis in the absence of a party thereto. A decision taken without
affording sufficient opportunity to the affected party of being heard or entering his
defence, is anathema to law. It is equally essential that a devious Defendant who is
deliberately evading service should not be permitted to delay justice by adopting
dilatory designs; this factor is of added significance when a summary suit is being
tried. Both these considerations have to be neatly and carefully balanced against
each other. If there is scope for doubt, the benefit should be given to the party
sought to be served.
5. The Postman is an independent agency whose Report should ordinarily be
accepted. No cogent reason has been disclosed before me to doubt that the
initial/signature on the AD Card was of a person having the control or
management of the partnership business, since admittedly the service was directed
to the principal place at which the partnership is carried on. It should not be
forgotten that the Postman in the area normally has full knowledge of the identity
of the addressees."
(Emphasis supplied)
20. This Court notes from the records of the Trial Court, which had been
summoned during these proceedings, that the plaint in the Suit
provided the same address for the petitioner as given by the
petitioner himself in the present petition. The packet containing the
summons bears the same address as well. Given the same, it cannot
be contended that the conclusion arrived at by the Trial Court is
contrary to material available on record or manifestly illegal as to
11 110 (2004) DLT 581, at p. 582.
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warrant interference with under article 227 of the Constitution of
India.12 Even assuming there was an error in the exercise of
discretion, the same is not an error as to the jurisdiction. This Court,
in exercise of its supervisory jurisdiction, will not convert itself into a
court of appeal and indulge in correcting errors in drawing inferences
or correct errors of mere formal or technical character.13 In the
circumstances, the challenge to the impugned order on this ground
fails and is rejected.
As to the calculation of period of limitation.
21. The second contention of the petitioner was that the prescribed
period of limitation of ten days ought to have been calculated from
20th December, 2011 - the date when the summons through process
server was served upon him. Placing reliance on Surinder Kumar v Prem
Kumar,14 and on Frank Anthony Public School v Amar Kaur,15 it was
contended that since the summons served by the process server was
received by the petitioner only on 20th December, 2011, the period of
ten days for entering appearance ought to be calculated from that
date and not from 23rd November, 2011, when the summons by
Registered Post was received.
22. This Court finds much merit in this contention. The issue of the date
from when the period of limitation ought to be calculated was
discussed by AVADH BEHARI ROHATGI J. - albeit in the context of
the summary procedure in Delhi Rent Control Act, 1958 under
12 Surya Devi Rai v Ram Chander Rai & Ors., supra, at n. 2, para. 38(6), p. 695.
13 Ibid., at para. 38(8), p. 696.
14 18 (1980) DLT 255.
15 (1984) 6 DRJ 47.
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Sections 25A to 25C - in Frank Anthony Public School v Amar Kaur,16
where he observed:
"5. The single point for decision in this case is whether fifteen days' time has to be
computed from 11-5-1982 when service was effected by registered post or from 12-
5-1982 when summons in the ordinary manner were served on the tenant...
...
9. ...The reason [counsel for landlady] gave in support of his argument was that
if the tenant is first served by registered post and then in the ordinary manner, the
second service does not wipe out the first service. And the tenant has been served it
is good enough. The second service to all intents and purposes in [sic: is]
meaningless.
10. In my opinion Section 25-B does not lend itself to the interpretation counsel
contends for.
...
12. In the present case service by registered post was effected on 11-5-1982.
Service in the ordinary manner was effected on 12-5-1982. The tenant thought
that fifteen days will commence from 12-5-1982. The Controller held that they
commence from 11-5-1982. In my opinion, the period of fifteen days will
commence from the date of the second service, namely, 12-5-1982 when on that
day the tenant was served in the ordinary manner by delivering the summons to the
Principal.
13. Both in the ordinary manner as well as by registered post summons have to be
sent in the statutory form ... In both these summons [sic: summonses] he was
told"
"You are hereby summoned to appear before the Controller within fifteen days of
the service hereof and to obtain the leave of the Controller to contest the application
for eviction on the ground aforesaid; in default whereof, the applicant will be
entitled at any time after the expiry of the said period of fifteen days to obtain an
order for your eviction from the said premises."
14. What will the tenant think on getting the registered summons on 11-5-1982
and the ordinary summons on 12-5-1982 as happened in this case ? He will
legitimately think that he will be well within time if he applies for leave to appear
and contest the application within fifteen days from 12-5-1982. My reasons for
this view are three.
15. Firstly both modes of service, namely ordinary service and service by registered
post are the requirements of the stature [sic: statute]. Summons have to be issued
to the tenant in both the modes. He may be served in both modes or in one or
none. If he is "duly served whether in the ordinary way or by registered post" the
Controller can proceed to hear the leave application made to him within fifteen
days from the service of summons. But if he is served in both ways, the question
arises : To which service-the first or the second-do we give primacy ? Remember the
16 Ibid., at pp. 48-53.
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second service has also the sanction of the stature [sic: statute]. The first service
and the second service stand on an equal footing. They are of equal efficacy and
equal weight. So why count fifteen days from the first. Why not from the second.
The object of the statute is to issue summons in the two modes giving a direction to
the tenant to appear before the Controller to answer the suit which has been
brought against him. The tenant is notified that an action has been instituted
against him, and that he is required to answer it at the time and place mentioned
in the summons. He is required to apply for leave to defend and contest the claim
by making an application to the Controller supported by an affidavit.
16. These summons are a notice to the tenant that the action against him has been
commenced by the landlord and that judgement will be given against him if he fails
to apply for leave to contest "within fifteen days of the service hereof". In other
words, the tenant is notified that he must apply within fifteen days from the service
of summons, the statutory period designated in the summons itself, and make
answer to the landlord's claim by applying for leave. So there is absolutely no
difference between service in the ordinary manner and service by registered post.
Both have the same message for the tenant. But dates are different. If he gets these
summons on different dates will he not be entitled to say, "I have come within
fifteen days for leave to appear from the date of the second summons which I got on
12-5-1982" ? This is what happened in this case. The object of the second service
is the same as the first service. There is no difference, qualitatively at least. So why
not count fifteen days from the date of the second service. In Kamal Bhandari [v
Brig. Shamsher Singh Malhotra17] the learned Judge said that it cannot be
done from the second service because the second service does not "wipe out" the first
service. This is true. No one says that the first service is wiped out. At the same
time, the statute does not say that you disregard the second service. As I have said,
both modes of service have been placed on par by the statute.
17. ...In view of the statutory sanction to the two modes of service the tenant is
perfectly within his rights to say that he counted fifteen days from the second
summons which he got on 12-5-1982.
...
20. Secondly, I think there is no reason to hold that the period of fifteen days will
commence from the date on which the tenant is first served. He gets summons twice
over in the same statutory form. When he gets the second summons the Controller
does not issue any warning : Mr. tenant, disregard the second summons if you ever
get it. You must go by the first service of summons". No signal. No signpost. If
there is no warning signal to him to disregard the second summon he is perfectly
entitled to think that both summons have equal value and equal weight because
they are after all issued by the same authority and under the same statute. There is
nothing to indicate in the second summons that time will be counted from the first
service or that the second service shall be disregarded.
21. Thirdly-and it is a corollary of the second-it would be unjust to the tenant if
fifteen days' time is counted from the first service. Not only will it be against the
law, it will also be against the principles of justice, equity and fair play if the
17 (1981) 2 DRJ 260.
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Controller tells the tenant, "I will count fifteen days from the first service. You
were misled by my second summons. You ought to have disregarded them
altogether". Law then becomes not an instrument of justice but a trap for the
unwary. Many will be ensnared. A salutory [sic: salutary] provision will prove the
undoing of many simple tenants uninitiated into the complexities of law. This case
illustrates it.
...
23. The legislature has devised a "Special procedure for the disposal of the
application for eviction on the ground of bona fide requirement". It is modelled on
Order XXXVII of the Code of Civil Procedure. The object is to reduce delays in
litigation. The object is to introduce a "summary trial" in place of full length trial.
But it is not the object of the legislature that you deny to the tenant an opportunity
to apply for leave to contest on the mere ground that he ought not to have been
misled by the second summons..."
(Emphasis supplied)
23. This Court finds itself in respectful agreement with the above
conclusions, and is of the view that the judgement would apply on all
fours to the present matter, although the same is in respect of
proceedings under Order XXXVII of the Code. The judgement
proceeds on the basis actus curiae neminem gravabit.18 Merely because the
summons was worded in a fashion that had no caveat for a defendant
to disregard a later service, the defendant ought to not be subject to a
disadvantage. It could be, and indeed was, contended that given the
fact that the period of ten days from the date of service of the first
summons expired even before the service of the second summons,
the facts of the present matter are different from those in Frank
Anthony Public School v Amar Kaur19 and hence the same ought to not
be applied to the present matter. This contention inspires no
confidence in the mind of this Court. The reasoning in Frank Anthony
Public School v Amar Kaur20 was not that the prescribed period of
18 Latin: An act of the court harms none.
19 Supra, at n. 16.
20 Supra, at n. 16.
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limitation gets extended because of the second service, but that the
prescribed period of limitation has to be calculated from the date of the
second service. The judgement observes that the second service has
as much sanction of the law as does the first and ought to not have
been ignored. Hence, this contention of the respondent ought to be
rejected.
24. Although the contention - that the prescribed period of limitation
ought to have been calculated from the date of service of the second
summons - appears to have been raised before the Trial Court by the
petitioner in the Application, the same has not been considered by
the Trial Court. Indeed, even the reply to the Application has denied
the averment raised in this regard, making it a clear issue that the Trial
Court ought to have considered. Although the impugned order does
not record any submissions as having been made when the
Application was heard, in the absence of clear observations to the
contrary, it would not be prudent for this Court to assume that an
issue arising from the pleadings has not been pressed by the
petitioner. Even assuming that during the hearing, the Counsel
appearing for the petitioner has not made any specific submissions,
the Trial Court would be bound to consider the submissions made in
the pleadings and record its findings on the same. Be that as it may,
given the clear dictum in Frank Anthony Public School v Amar Kaur,21 the
Trial Court would have had to hold that the period of limitation
ought indeed to have been calculated from 20th December, 2011,
when the second summons was served upon the petitioner.
21 Supra, at n. 16.
CM(M) 1117/2012
25. However, this Court hastens to add that this does not ipso facto
invalidate the decree passed. The Trial Court, when it passed the
decree, proceeded on the basis that summons was served upon the
petitioner when he refused service thereof, and passed the decree.
Although it may have been desirable that the Trial Court - having
issued the summons by two means - may have awaited the report of
the process server, the decree passed bona fide on the basis of material
available on record would be valid and binding unless set aside. Being
an ex parte decree passed under Order XXXVII, the petitioner is
required to show not only sufficient cause for his absence on the day
when the decree was passed, but also sufficient grounds for his being
granted leave to defend.22
26. In the circumstances, although the petitioner's contention is accepted
by this Court, it shall proceed to consider the petitioner's grounds on
which he seeks leave to defend as well, before deciding the petition.
As to grounds for leave to defend
27. On merits, the only case of the petitioner has been that the Suit
would not be maintainable under Order XXXVII as the amount of `
5,00,000/- (Rupees five lakh only) is a penalty and not liquidated
damages. Relying on Karim Hussainali Wajawalia & Anr. v Origin
Information Technology (India) Ltd.,23 Vishal Engineers & Builders v Indian
Oil Corporation Ltd.,24 Sipca India Ltd. v Manas Pratim Deb25 and State
22 Rajni Kumar v Suresh Kumar Malhotra & Anr., (2003) 5 SCC 315.
23 2008 (4) Mh. LJ 937.
24 2012 (1) Arb LR (Del) 253.
CM(M) 1117/2012
Bank of Saurashtra v Ashit Shipping Services (P) Ltd. & Anr.,26 the
petitioner contended that where a suit seeks damages, whether
liquidated or otherwise, it will not be maintainable under the
summary procedure of Order XXXVII and has to be tried as a
regular suit. Counsel for petitioner contended that a breach of
contract does not entitle a party to damages, it is only the
determination of the Court that damage has incurred that entitles a
party to damages. On this basis, it is contended that even if the
contract provided for liquidated damages, unless the party proves in
trial that it has indeed incurred damage and the extent of such
damage, the Court cannot decree damages in favour of the said party.
It was further contended that the amount specified in the contract is
not a genuine pre-estimate of the likely damage that may arise from a
breach of the condition, but is a stipulation in terrorem and the
petitioner ought to have been granted an opportunity to disprove the
respondent's claim for damages in trial.
As to fraud
28. Before this Court adverts to its analysis of this contention, it must be
noted that the petitioner had raised an additional contention on
merits; that the contract is not valid or binding, having been induced
by fraud. The petitioner both before the Trial Court as well as before
this Court contended that the contract is unenforceable as it was
vitiated by fraud. The fraud, according to the petitioner, lay in the fact
that the deed of 16th June, 2010 whereby he bound himself to work
25 Order dated 17th November, 2011 in RFA 596 of 2002.
26 (2002) 4 SCC 736.
CM(M) 1117/2012
for the petitioner for five years was admittedly to be executed after
the contract subsumed in the letter of offer. Inasmuch as the letter of
offer was accepted by the petitioner only on 19th June, 2010, the deed
of 16th June, 2010, being prior to the letter of offer, was obtained by
fraud. The contention, curious as it is, inspires no confidence in this
Court.
29. Fraud, undeniably, vitiates all, including even decrees of Courts.27
However, this Court recollects the dictum of LORD ATKIN, speaking
for the Judicial Committee of the Privy Council in an appeal from the
High Court of Judicature at Rangoon, when he warned that
[f]raud...like any other charge of a criminal offence, whether made in civil or
criminal proceedings, must be established beyond reasonable doubt, and a finding
of fraud cannot be based on suspicion or conjectures.28 That an
allegation of fraud requires particulars of the fraud to be pleaded in
detail is the well settled position in law, which is consistently followed
by the Courts.29 In the present case, the only allegations were that (a)
the deed of 16th June, 2010 was to be executed after the contract/letter
of offer but was signed before the latter, and (b) the letter of offer was
signed by the respondent on 16th June, 2010 but was given to the
petitioner only on 19th June, 2010 for his signature.
27 SP Chengalvaraya Naidu (dead) by LRs v Jagannath (dead) by LRs & Ors., (1994) 1 SCC 1; AV Papayya
Sastry & Ors. v Govt. of AP & Ors., (2007) 4 SCC 221.
28 ALN Narayanan Chettyar & Anr. v Official Assignee of the High Court, Rangoon & Anr., (1941) 54 LW
606 : AIR 1941 PC 93.
29 Tom Boevey Barrett v African Products Ltd., (1929) 29 LW 72 : AIR 1928 PC 261; Bharat Dharma
Syndicate Ltd. v Harish Chandra, (1936-37) 64 IA 143 : AIR 1937 PC 146; Bishundeo Narain & Anr. v
Seogeni Rai and Jagernath, 1951 SCR 548 : AIR 1951 SC 280, at para. 25, p. 283; Union of India v
Pandurang Kashinath More, AIR 1962 SC 630, at paras. 10-12 et. seq., p. 633; Svenska Handelsbanken v
Indian Charge Chrome & Ors., (1994) 1 SCC 502, at para. 41, p. 517; AC Ananthaswamy & Ors. v Boraiah
(dead) by LRs., (2004) 8 SCC 588, at para. 5-6, p. 590; Mahatma Gandhi Sahakara Sakkare Karkhane v
National Heavy Engg. Coop. Ltd. & Anr., (2007) 6 SCC 470, at para. 25, p. 481.
CM(M) 1117/2012
30. These limited averments and pleadings cannot be regarded as making
out a case of fraud. It has not been the contention of the petitioner
that the respondent had concealed, whether actively or otherwise, the
nature of or the contents of the deed of 16th June, 2010 from the
petitioner before the same was signed. It has not been the case of the
petitioner that the respondent had actively misrepresented to him as
to the nature of or the contents of the said deed before the same was
signed. Even assuming these to be true, the petitioner has not given
any explanation as to why he has not taken any action or initiated any
proceedings to have the said documents - alleged to have been
obtained by fraud - declared as null and void. Further, the petitioner
has offered no explanation as to what steps he took to ascertain the
nature of and/or the contents of the documents he executed, whether
prior to executing or subsequent thereto. It is well settled that where
a person on whom fraud is committed is in a position to discover the
truth by ordinary diligence, fraud is not proved.30 Further, it is not the
case of the petitioner that he has been under any disability since the
day he executed the documents that prevented him from challenging
the same, nor can it be so assumed, given the averments in the
present petition. In the circumstances, these allegations have to be
regarded as being of no consequence in the eyes of law and the
observation of the Trial Court in the impugned order - to the effect
that there is no explanation from the petitioner as to his having
broken the contract - has to be understood in this context. The Trial
30 Proviso to section 19 of the Act; Shri Krishnan v Kurukshetra University, (1976) 1 SCC 311, at para. 7,
p. 316.
CM(M) 1117/2012
Court thus considered only the issue raised in law as set out earlier,
considering the Application as raising a mere demurrer and admitting
the facts averred in the plaint for want of non-traverse. This Court
finds no infirmity in this approach and is of the view that the
Application has indeed not denied the factum of the petitioner having
broken the contract - nor has the present petition.
As to maintainability
31. Thus bringing up the first issue of law that the petitioner has raised
that where damages are claimed, the suit is not maintainable under
Order XXXVII. The Supreme Court has consistently held that
breach of a contract does not eo instanti give rise to a claim of or a
right to a decree of damages sans any proof of damage.31 Indeed, it
was on this basis that the Supreme Court, in the case of State Bank of
Saurashtra v Ashit Shipping Services (P) Ltd. & Anr.32 - which was relied
upon by the petitioner - held that since the dispute involved an
indemnity, which indemnity required proof of actual loss before
invocation, a summary suit will not be maintainable.
32. However, the Court cannot lose sight of the express provision of the
statute; section 74 of the Act, as amended, provides:
"74. Compensation for breach of contract where penalty stipulated for.- When a
contract has been broken, if a sum is named in the contract as the amount to be
paid in case of such breach, or if the contract contains any other stipulation by way
of penalty, the party complaining of the breach is entitled, whether or not actual
31 Fateh Chand v Balkishan Dass, (1964) 1 SCR 515 : AIR 1963 SC 1405, at para. 10, p. 1411; Maula Bux
v Union of India, (1969) 2 SCC 554, at para. 6, p. 559; Union of India v Rampur Distillery and Chemical Co.
Ltd., (1973) 1 SCC 649, at para. 4, p. 651; Union of India v Raman Iron Foundry, (1974) 2 SCC 231, at
para. 11, pp. 243-244; Oil & Natural Gas Corporation Ltd. v Saw Pipes Ltd., (2003) 5 SCC 705.
32 Supra, at n. 26, para. 14, pp. 741-742.
CM(M) 1117/2012
damage or loss is proved to have been caused thereby, to receive from the party who
has broken the contract reasonable compensation not exceeding the amount so
named or, as the case may be, the penalty stipulated for.
(Emphasis supplied)
33. The provision, doubtless, does not do away with the requirement of
proof of damage or loss arising out of the breach of contract; what it
does away with is the requirement of proving the actual damage or loss,
i.e., the quantum of damage or loss arising out of the breach of the
contract.33 It cannot be stated that where some damage or loss has
been shown to arise from the breach of the contract, the plaintiff
ought nonetheless to prove the extent of loss, in all cases. This was
explained by the Bench of three judges of the Supreme Court in the
case of Maula Bux v Union of India,34 where JC SHAH J. (who was then
acting as the Chief Justice of India), speaking for the Bench,
observed:
"...It is true that in every case of breach of contract the person aggrieved by the
breach is not required to prove actual loss or damage suffered by him before he can
claim a decree, and the Court is competent to award reasonable compensation in
case of breach even if no actual damage is proved to have been suffered in
consequence of the breach of contract. But the expression "whether or not actual
damage or loss is proved to have been caused thereby" is intended to cover different
classes of contracts which come before the Courts. In case of breach of some
contracts it may be impossible for the Court to assess compensation arising from
breach, while in other cases compensation can be calculated in accordance with
established rules. Where the Court is unable to assess the compensation, the sum
named by the parties if it be regarded as a genuine pre-estimate may be taken into
consideration as the measure of reasonable compensation, but not if the sum named
is in the nature of a penalty. Where loss in terms of money can be determined, the
party claiming compensation must prove the loss suffered by him."
(Emphasis supplied)
33 Fateh Chand v Balkishan Dass, supra at n. 31, para. 10, p. 1411.
34 Supra, at n. 31, para. 6, p. 559.
CM(M) 1117/2012
34. Thus, the contention of the petitioner that in the case of claim for
liquidated damages, a suit under Order XXXVII will not be
maintainable per se has to be rejected. In a case where damage or loss
arising out of the breach of contract is admitted, but a dispute arises
only as to the quantum of the loss, a suit would certainly be
maintainable under Order XXXVII if the contract provides for
liquidated damages. However, should the defendant raise a triable
issue arise as to whether the amount specified in the contract is a
reasonable and genuine pre-estimate of loss or damage likely to arise
as a result of the breach or a stipulation in terrorem, the suit would no
longer be maintainable under Order XXXVII of the Code, and ought
to be tried as a regular suit and the defendant ought to be granted
leave to defend. This view finds support in two decisions of two
learned Single Judges' decisions in the past.35 This Court must,
however, hasten to add that in both judgements, it appears from the
report that the factum of damage or loss arising out of breach of
contract was undisputed owing to non-traverse of the averments in
the plaint, and ought to not be regarded as precedents for any other
circumstance.
35. The other judgements cited by the petitioner do not dispute this
position of law. The judgement of the Bombay High Court was one
where the defendant specifically denied the actual damage or loss to
the plaintiff.36 The judgement of the Division Bench of this Court
35 Ishwar Dass v Harbans Singh, 1994 (3) 108 PLR (Del) 37, at para. 10, p. 39; Pritam Singh Dhingra v
Ambadipudi Uma Sambamurthy, (1984) 7 DRJ 150, at para. 32, p. 156.
36 Karim Hussainali Wajawalia & Anr. v Origin Information Technology (India) Ltd., supra, at n. 23, para. 2, p.
938 and para. 5, p. 939.
CM(M) 1117/2012
was in respect of a challenge to an arbitral award, where the Court
was discussing the nature of a claim for liquidated damages. Even in
the said judgement, the Division Bench observed that the arbitrator
was competent to consider the issue of sufferance of any damages
whatsoever,37 a proposition accepted by the Supreme Court in Maula
Bux v Union of India.38 The judgement of the learned Single Judge of
this Court in Sipca India Ltd. v Manas Pratim Deb,39 was a matter where
the amount specified in the contract was regarded as a penalty in its
own peculiar circumstances, in a regular suit and hence not of
relevance in the present matter.
36. In the instant case, the only contention raised by the petitioner in his
Application against the averment of the plaintiff incurring damage or
loss due to the breach is as under:
" 5) That without prejudice to the submissions made herein above, even otherwise
also, the Plaintiff in para 9 of its Plaint states that the Defendant is liable to
tender the Plaintiff Company the sum of Rs. 5,00,000/- on account of recruiting,
placing and training the Defendant. In this regard, it is most respectfully
submitted that the Plaintiff in law, cannot demand any sum without proving in
evidence the extent of expenditure as stated so. The demand of Rs. 5,00,000/- by
the Plaintiff is allegedly on account of the expenses incurred by it in recruiting,
placing and training. Hence, no decree can be passed unless these criteria are filed
and proved in evidence before the Hon'ble Court.
37. It is evident from the above that the petitioner has not disputed the
expenditure by the respondent in respect of recruiting, placing and
training the petitioner. The petitioner, to the contrary, has admitted,
for want of traverse, to having received the stipends paid by the
37 Vishal Engineers & Builders v Indian Oil Corporation Ltd., supra at n. 24, at para. 37, p. 267.
38 Supra, at n. 31, para. 6, p. 559.
39 Supra, at n. 25.
CM(M) 1117/2012
respondent, as well as having been recruited, placed, and having
partially attended training at the expense of the respondent. All that
the petitioner has contended is that the respondent cannot, in law,
demand any sum without proving the extent of expenditure as
claimed. This, to the mind of this Court, is doubtless, a demurrer on
the issue of damage and damages therefor. Given the same, the
matter falls squarely within the ambit of the precedents above cited,
as to maintainability of a suit for liquidated damages under Order
XXXVII of the Code. Thus, the challenge of the petitioner of the
impugned order on this ground fails as well.
As to penalty and liquidated damages
38. This brings up the last of the issues raised by the petitioner: that the
amount of ` 5,00,000/- (Rupees five lakh only) is not a genuine pre-
estimate of likely damage arising out of breach of the contract. On
this ground, this Court is of the view that the petitioner's case ought
to succeed. The locus classicus as to section 74 and stipulations as to
damages qua liquidated damages is the judgement of JC SHAH J. (as he
then was) in Fateh Chand v Balkishan Dass,40 where, speaking on behalf
of five judges of the Supreme Court, he observed:
"8. ...The section is clearly an attempt to eliminate the sometime elaborate
refinements made under the English common law in distinguishing between
stipulations providing for payment of liquidated damages and stipulations in the
nature of penalty. Under the common law a genuine pre-estimate of damages by
mutual agreement is regarded as a stipulation naming liquidated damages and
binding between the parties: a stipulation in a contract in terrorem is a penalty
and the Court refuses to enforce it, awarding to the aggrieved party only reasonable
compensation. The Indian Legislature has sought to cut across the web of rules
40 Supra, at n. 35, p. 1410-1411.
CM(M) 1117/2012
and presumptions under the English common law, by enacting a uniform principle
applicable to all stipulations naming amounts to be paid in case of breach, and
stipulations by way of penalty.
...
10. ...The measure of damages in the case of breach of a stipulation by way of
penalty is by Section 74 reasonable compensation not exceeding the penalty
stipulated for. In assessing damages the Court has, subject to the limit of the
penalty stipulated, jurisdiction to award such compensation as it deems reasonable
having regard to all the circumstances of the case..."
39. It was this position of law that was subsequently further explained in
Maula Bux v Union of India,41 as set out earlier. The law, thus, is amply
clear: that the Court has the duty, when confronted with a case of
contractual stipulation of damages, to ascertain whether the same is a
genuine and reasonable pre-estimate of the damage or loss likely to
arise due to breach or a stipulation in terrorem, i.e., a penalty. The Trial
Court, in the impugned order undertook this exercise, considered the
provisions of the contract and concluded that the amount of `
5,00,000/- (Rupees five lakh only) is indeed a genuine and reasonable
pre-estimate of the damage or loss likely to arise due to a breach of
the contract. Ordinarily, this Court would be loath to interfere in
issues of interpretation of contracts and other documents. If the
interpretation given by the Trial Court is a reasonable interpretation,
this Court would refuse to interfere with the same, even if it was of a
different opinion.
40. However, in the instant case, this Court is of the view that the view of
the Trial Court is contrary to the material available on record. The
Trial Court observed that since the respondent has expended time
and money in the selection process, payment of stipend, procuring
41 Supra, at n. 31, para. 6, p. 559.
CM(M) 1117/2012
admission, paying educational expenses, and has lost the expected
services of the petitioner for a period of five years, and hence the
amount of ` 5,00,000/- (Rupees five lakh only) can be regarded as
liquidated damages, and not by way of a stipulation in terrorem. It
observed that it is not disproportionate to the loss likely to have
arisen to the respondent. In such circumstances and based on its said
observations, the Trial Court, by the impugned order, refused to set
aside the decree already granted in favour of the respondent.
41. However, the Trial Court has failed to consider the fact that under
the terms of the letter of offer, the amount of ` 5,00,000/- (Rupees
five lakh only) is payable by the petitioner in the following
eventualities:
41.1. In case the petitioner fails to serve the respondent for a period
of five years from the date of joining the course at the
institution.
41.2. In case the petitioner is dismissed by the respondent itself for
serious misconduct.
41.3. In case the petitioner fails to obtain the minimum percentage of
marks or obtain the Diploma for any other reason.
41.4. In case anything adverse is received from the institution in
respect of the petitioner's conduct or discipline and he is
expelled from the course.
41.5. In case he is expelled from the course for any or no reason
otherwise.
CM(M) 1117/2012
41.6. In case any declaration or information furnished by the
petitioner is found false or incorrect.
41.7. In case any material information is found to have been wilfully
suppressed by the petitioner.
41.8. In case his candidature is terminated for either of the above two
reasons.
41.9. In case his candidature is terminated for any or no reason
otherwise.
42. In addition to the above, the deed of 16th June, 2010 further provides
that he shall forfeit the amount of ` 5,00,000/- (Rupees five lakh
only) if he either (a) abandons, fails to report for, or does not secure
the minimum percentage in the course for obtaining the Diploma, or
(b) fails to join duty or resigns from employment of respondent or is
terminated from service for any kind of misconduct within five years
from the date of joining the course.
43. Apart from being onerous, the terms of the letter of offer as well as
the deed make no distinction between the amount payable if the
petitioner leaves the employ of the respondent of his own volition or
if the petitioner is dismissed for any or no reasons whatsoever. Nor does
it make any distinction between the amount payable if the contract is
broken immediately or at a later stage, such as after four and a half
years, for instance. The contract, essentially, provides that even if the
respondent were to break the contract by dismissing the petitioner for
any wrong reason, the petitioner would be liable to pay to the
respondent an amount of ` 5,00,000/- (Rupees five lakh only), if the
CM(M) 1117/2012
dismissal were to occur before the expiry of the said five years. To
indulge in reductio ad absurdum, the terms of the letter of the offer
could be interpreted to the extent that if the petitioner were to expire
even due to the respondent's fault, prior to the expiry of the said five
years, the heirs and estate of the petitioner would be liable to pay the
amount of ` 5,00,000/- (Rupees five lakh only) to the respondent.
44. Given the above, the amount of ` 5,00,000/- (Rupees five lakh only)
cannot, by any stretch of imagination, be regarded as a genuine pre-
estimate of the damage or loss likely to arise from a breach of the
contract. The stipulation is a penalty calculated to instil fear in the
mind of the petitioner of the adverse consequences of leaving the
employ of the respondent; it cannot be considered as liquidated
damages. In the circumstances, it is doubtless that the petition ought
to succeed on this ground, and in view of the fact that the petitioner
was served a second summons on 20th December, 2011. Accordingly,
the impugned order, as well as the decree are liable to be and are thus
set aside.
45. However, it would not be just or equitable to grant the petitioner
unconditional leave to defend in the circumstances of the case. The
petitioner has, as discussed, admitted to having broken the contract.
The petitioner has further admitted to the factum of the respondent
having incurred expenses on his behalf, towards stipend and for
training. In the circumstances, the petitioner ought to be granted
leave to defend only on the issue of quantum of damages to be paid
CM(M) 1117/2012
to the respondent for the breach of the contract subsumed in the
letter of offer.
46. In the above circumstances, and subject to the conditions in
paragraph 43 and the present paragraph, the petition is allowed. The
leave to defend shall be conditional upon the petitioner depositing
with the Trial Court an amount of ` 1,00,000/- (Rupees one lakh
only) within a period of four weeks from today. The Trial Court shall
pass appropriate directions for investing the said amount in
appropriate interest bearing deposits pending decision of the Suit.
The petitioner shall file his Written Statement, alongwith his list of
documents, in the Trial Court, within a period of thirty days from the
date of this order. List the matter before the Trial Court on 4th July,
2014 for further directions. The records of the Trial Court shall be
returned within a period of ten days if not already done.
NAJMI WAZIRI
(JUDGE)
MAY 28, 2014
CM(M) 1117/2012
