M/S B.R. Arora & Associates Pvt Ltd vs M/S J.K.S. Construction Pvt Ltd & ...
2018 Latest Caselaw 6575 Del

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*    IN THE HIGH COURT OF DELHI AT NEW DELHI

%                                      Date of decision: October 31, 2018

+     CS(COMM) 65/2017

      M/S B.R. ARORA & ASSOCIATES PVT LTD ..... Plaintiff
                     Through  Mr.Vaibhav Dang, Adv.

                          versus

      M/S J.K.S. CONSTRUCTION PVT LTD & ANR ..... Defendants
                      Through Mr.Prateek K. Chadha, Adv.

      CORAM:
      HON'BLE MR. JUSTICE JAYANT NATH

JAYANT NATH, J. (ORAL)

IA No. 7844/2018

1. This application is filed by the defendants under Order 37 Rule 5 read with Section 151 CPC seeking leave to defend the present suit.

2. The plaintiff has filed the present suit for recovery of an amount of Rs.2,73,25,000/-. The case of the plaintiff is that it is a company engaged in construction business. Between the years 2009 and 2011, the plaintiff was awarded various work contracts including the projects at Sulur, Port Blair, Bamrauli and Tirupati. On the request of defendant No.1, the defendant Company was appointed as sub-contractor to execute the said works. An agreement in respect of the Sulur project was executed on 06.03.2009 and thereafter, other agreements were executed on 02.07.2009, 10.09.2010 and 14.02.2011 in respect of the projects at Port Blair, Bamrauli and Tirupati.

3. During the execution of the work of resurfacing of runway at Air Force Station, Bamrauli, Allahabad, defendant No. 1 represented to the plaintiff that it was undergoing a financial crunch and would not able to execute the aforesaid work unless a temporary financial help is granted. On the request of the defendant, the plaintiff agreed to provide financial assistance. Despite the said financial assistance, it is pleaded that defendant No. 1 failed to act as per the assurances and representations and left the work midway. In this background, the plaintiff and defendant No. 1 arrived at an MOU dated 12.04.2013 whereby defendant No. 1 acknowledged that the project work at Allahabad was discontinued by defendant No. 1 due to financial difficulties and that defendant No. 1 had requested for a short term loan from the plaintiff to clear the market liability. Defendant No. 1 also acknowledged that an outstanding amount of Rs.2 crores including interest up to date would be repaid within a period of two months. Towards repayment of the said loan, defendant No. 1 issued two post dated cheques, one cheque for Rs. 1.50 cores and one for Rs. 50 lakhs. It is stated that as some points remained uncertain, another MOU was executed with defendant No. 1 on 22.04.2013 whereby it was mentioned that all dues payable to defendant No. 1 up to the date of signing of that MOU in respect of the four projects would stand settled by the plaintiff for a consideration of Rs.55,40,000/-. Of this amount, Rs. 30 lakhs had already been paid on 18.04.2013 and the balance sum of Rs. 25,40,000/- was paid by the plaintiff vide cheque dated 22.04.2013 in favour of defendant No. 1. Further acknowledging the outstanding amount payable to the plaintiff, defendant No. 1 delivered to the plaintiff two cheques dated 07.06.2013 for Rs.1.50 crores and 10.06.2013 for Rs. 50 lakhs respectively. The cheques were

issued in replacement of the earlier cheques given under the MOU dated 12.04.2013. The cheques were not presented on account of the request of defendant No. 1 about there being insufficient funds. However, defendant No. 1 executed a letter of undertaking dated 19.07.2013 whereby it acknowledged that the cheques issued pursuant to MOU dated 22.04.2013 were not honoured and that the plaintiff had agreed to give extension of time till 30.11.2013 for the repayment of its dues. In respect of the letter of undertaking dated 19.07.2013, defendant No. 2 also personally undertook to clear the dues of the plaintiff as on 30.11.2013 along with interest. Two fresh cheques, one cheque for Rs.1.50 crores and other cheque for Rs. 70 lakhs both dated 30.11.2013 were issued by the defendants in favour of the plaintiff. However, it is pleaded that when the two cheques were sent for encashment on 02.12.2013, the same were returned by the banker of the defendants stating „insufficient funds‟. On the request of the defendants, the cheques were re-presented but were again dishonoured. On 07.02.2014 a legal notice was issued to the defendant under Section 138 of the NI Act. Several letters were thereafter written to the defendants besides letter dated 04.12.2014, 03.01.2015. Vide letter dated 01.09.2015, it is pleaded that defendant No. 1 attempted to mischievously wriggle out of the liability. Relying upon the two MOUs dated 12.04.2013 & 22.04.2013 and letter of undertaking dated 19.07.2013, the plaintiff has filed the present suit. Interest is also claimed @0.75 % per month on the principal amount of Rs.2 crores w.e.f. 01.12.2013 till repayment. Hence, the present suit for recovery.

4. In his application for leave to defend being IA No. 7844/2018, the defendants have raised the following pleas:-

(i) That the plaintiff has failed to pay the court fees and that only court fee of Rs.5,000/- has been paid by the plaintiff.

(ii) This court does not have the territorial jurisdiction as no part of cause of action arose within the jurisdiction of this court. In view of Section 20 CPC, no suit can be filed before this court. The corporate office/principal office of defendant No. 1 Company is in Chennai.

(iii) It is further pleaded that the plaintiff has deliberately suppressed the fact that there are various payments due from the plaintiff to defendant No.

1. Reliance is placed on the letter dated 01.09.2015. It is claimed that a sum of Rs.11.05 crores is admittedly due from the plaintiff to the defendants which is evident from the correspondence between the parties including letter dated 01.09.2015.

(iv) There exists an arbitration clause in the agreement and hence, the present suit is not maintainable.

5. I have heard learned counsel for the parties.

6. Learned counsel for the defendants has reiterated the following submissions to claim that it has a substantial defence in the matter and the defendants are entitled to unconditional leave to defend the present suit. The following pleas have been raised:-

(i) There exists an arbitration clause in the Memorandum of Understanding, namely, Clause 20 of the said agreement. Hence, it is pleaded that it was mandatory on the part of the plaintiff to refer the disputes to arbitration.

(ii) It has been further pleaded that under Order 37 CPC, only a fixed amount can be claimed. It is pleaded that a perusal of the correspondence shows that the amount claimed by the plaintiff keeps changing.

(iii) It is further pleaded relying upon the correspondence including the letter exchanged between the parties on 04.12.2014 that there is a serious bona fide dispute about what is payable to the plaintiff.

7. Learned counsel appearing for the plaintiff has denied the contentions of the defendants. He submits that needless claim is being made by the defendants claiming dues payable by the plaintiff which is wholly contrary to the terms of the MOUs dated 12.04.2013 and 22.04.2013 and the letter of undertaking dated 19.07.2013. He further submits that despite lapse of five years, no steps have been taken by the defendants against the plaintiff for recovery of its so called dues. He pleads that the said defence is a complete moonshine.

8. I may look at the documents executed between the parties. A perusal of the MOU dated 12.04.2013 shows that defendant No. 1 had admitted that during carrying out work at Bamrauli, Allahabad, the defendant had sought a short term loan and that defendant No. 1 had assured that the outstanding loan of Rs. 2 cores including interest would be repaid within two months from that date. The MOU acknowledged that PDCs for Rs.1.50 cores and Rs.50 laksh were given to the plaintiff to be encashed within two months. Thereafter a second MOU dated 22.04.2013 was executed between the parties. The MOU acknowledges that the four projects were awarded to the plaintiff including at Sulur, Port Blair, Allahabad and Tirupati airports and that defendant NO. 1 was the sub-contractor. The MOU states that all dues payable to the defendants up to the date of signing of the MOU in respect of the four projects stand settled by the plaintiff for a consideration of Rs.55,40,000/- and that on receipt of the said sum of Rs. 55,44,000/-, defendant No. 1 would have no further dues including BG margin. The

MOU acknowledges receipt of the said sum of Rs. 55,40,000/-. Paras 7 and 8 of the MOU read as follows:-

"7. Now both the parties have decided to arrive at a full and final settlement in respect of all the above said four project works till today and upto completion of the project works, and, after discussions and negotiations by both the parties at all levels, the parties have finally agreed and mutually decided. Without any pressure on both sides, for full and final settlement of the terms expressly stated hereunder:

(8) It is agreed between the parties that all dues payable to the Second Party upto the date of signing of this Memorandum of Understanding with respect to the four projects mentioned above stand settled by the First Party in full and final settlement for a consideration of Rs.55,40,000/- (Rupees Fifty Five Lacs forty thousand only) and on receipt of the amount of Rs.55,40,000/- (Rupees Fifty Five Lacs forty thousand only), the Second Party acknowledges that the Second Party has no further dues, including BG margin etc., payable from the First Party with respect to the aboe mentioned four works. However, the Second Party would be entitled to receive payments as mentioned in Para NO. 6 (Six) above as and when future payments are made by the Deparment to the first Party. All other dues including the amount of Rs. 33,54,600/- (Rupees Thirty Three Lacs Fifty Fourt Thousand Six Hundred only) received on 28.01.2013 by the First Party towards Insurane Claim and Final Bill payment amounting to Rs.89,43,067/- (Rupees Eighty Nine Lacs Fourty Three Thousand Sixty Seven only) received by the First Party on 30.03.2013 for Tirupati Project from the Airport Authority of India also stand settled after making the above payment of Rs. Rs.55,40,000/- (Rupees Fifty Five Lacs forty thousand only) by the First Party to the Second Party.

The First Party has already transferred Rs.30,00,000/- (Rupees Thirty Lacs only), by Cheque No. 888279 dated 18.04.2013 drawn on State Bank of India, M Block Market, Greater Kailash- II, New Delhi-110048 to the Bank Account of the Second Party with State Bank of India, Overseas Branch, Chennai, on 18th

April 2013 out of the above said agreed settlement amount of Rs.55,40,000/- (Rupees Fifty Five Lacs Forty Thousand only) The receipt of which the Second Party acknowledges and for the balance amount, a cheque No. 888300 dated 22.04.2013 amounting to Rs. 25,40,000/- (Rupees Twenty Five Lacs Forty Thousand only) drawn on State Bank of India, M Block Market, Greater Kailash-II, New Delhi-110048, account of the First Party in favour of the Second Party is being handed over to Mr.J. Saravanan, Executive Director of the Second Party duly authorized by Resolution dated 11th April 2013 and the receipt of which is duly acknowledged herein by the Second Party."

9. Similarly, defendant No. 2 issued a letter of undertaking dated 19.07.2013 where it acknowledges that on account of paucity of funds, defendant No. 1 company could not honour its post dated cheques given by defendant No. 1 Company dated 07.06.2013 and 10.06.2013. The said letter also states that extension of time has been sought till 30.11.2013. The letter also acknowledges having handed over post dated cheques i.e. one cheque for Rs. 1.50 cores and the other cheque for Rs. 70 lakhs both dated 30.11.2013.

10. It is clear that as on that date, the defendants have repeatedly acknowledged their liability to pay principal sum of Rs.2 cores. Further, as per the letter of undertaking, they have undertaken to pay Rs.2 crores plus Rs. 20 lakhs interest to the plaintiff.

11. I may first deal with the contention of the learned counsel for the defendants claiming that certain payment are due and payable to the defendants.

12. Learned counsel for the defendants had in court tried to rely upon communication dated 04.12.2014 addressed by the plaintiff to the defendants where a reference was made to the Port Blair project work. The plaintiff had noted that under the MOU, the plaintiff was to appropriate major share of pending bills amount from the said Port Blair project towards part repayment of the loan liability. Much stress was made by the defendant that at least some amount was payable to the defendants by the plaintiff as is apparent from this communication. Reliance was also sought to be placed on the communication sent by the defendants to the plaintiff dated 01.9.2015 where it is claimed that a total sum of Rs.11.05 crores is due to the defendants out of the Bamrauli Project bill payments and Sulur receivable realization which has not been paid to the defendants. Based on these two letters a claims is made that the plaintiff owes the defendant Rs. 11.05 crores.

13. As noted above, it is absolutely clear that till 19.07.2013, there have been repeated acknowledgments made by the defendants that they are liable to a sum of Rs. 2 crores for repayment of loan from the Allahabad project. On three occasions post dated cheques were given to the plaintiff towards repayment of the said loan amount. An attempt has now been made sometimes in 01.09.2015 to wriggle out of the acknowledgement where suddenly the defendants claim that a sum of Rs. 11.05 crores is due and payable to the defendants for the Bamrauli Project and Sulur Project.

14. A perusal of the application for leave to defend would show that the only defence taken by the defendants as regards this plea is that the MOUs and the acknowledgement dated 19.07.2013 relate to only a part of the financial dealings between the parties. It is claimed that the plaintiff owes to the defendants a sum of Rs. 11.05 crores which is evident from the

correspondence between the parties dated 01.09.2015. Based on the averment in the said letter dated 01.09.2015, it has been claimed that the amount claimed by the plaintiff in the present suit is not due and payable.

15. The explanation is completely meaningless.

16. The defendant has executed two MOUs on 12.04.2013 and 22.04.2013 and the letter of undertaking dated 19.07.2013 unconditionally acknowledging the dues of Rs.2 cores plus interest to the plaintiff. Along with these documents, post dated cheques were issued on 12.04.2013, again on 22.04.2013 and 19.07.2013. Execution of these documents and presentation of the post dated cheques are at complete variance with the bald claim now being made that the plaintiff owes the defendants a sum of Rs.11.05 crores.

17. That apart, no details are given about how this claim of Rs. 11.05 crores has been arrived at.

18. It was put to the learned counsel for the defendants in the course of arguments as to why the defendants did not file appropriate legal proceedings against the plaintiff for recovery of the said claim of Rs. 11.05 cores. The only explanation given by the learned counsel for the defendants was that as the plaintiff company is short of funds which is evident from its pleadings as it has filed the suit without payment of full court fees. Hence, the chances of recovery of any decree in favour of the defendant were remote. Hence, the defendant chose not to initiate legal proceedings against the plaintiff. The explanation is untenable. Full court fees of Rs.2,66,425/- has been paid by the plaintiff.

19. In my opinion, this bald allegation claiming outstanding dues of Rs.11.05 crores cannot be accepted and is nothing but a moonshine defence.

Keeping into account unconditional acknowledgments of liability by the defendants on 12.04.2013, 22.04.2013 and 19.07.2013, it is clear that the claim is completely unbelievable. In my opinion, the said defence are completely moonshine.

20. Coming to the other pleas raised by the learned counsel for the defendants.

21. Admittedly, there is an arbitration clause in the MOU being Clause 20. It was put to the learned counsel for the defendants as to why he did not take steps to file an application under Section 8 of the Arbitration Act. The only reply given was that it was for the plaintiff to have moved for appointment of an arbitrator.

22. It is settled legal position that existence of arbitration clause does not bar filing of a suit. Reference in this context may be had to the judgment of Ministry of Sound International Ltd. v. Indus Renaissance Partners Entertainment Pvt. Ltd.,156 (2009) DLT 406, where this court held as follows:

"An arbitration clause, it is well settled does not bar/prohibit filing of a civil suit. The contesting party always has option to continue with the civil proceedings and give up the right to enforce the arbitration clause. If the contesting party files an application under Sections 8 or 45 of the Act, the parties are relegated to arbitration. Plaintiff takes a risk when he invokes jurisdiction of a civil Court in spite of an arbitration clause. Thereafter, it is a wish and will of the defendant which determines whether civil proceedings should continue or the parties should be relegated to arbitration if conditions of the Sections 8/45 of the Act are satisfied. Once, however, parties have consented and allowed civil proceedings to continue they cannot subsequently invoke the arbitration clause and make the dead clause alive after the same has

been ignored and not invoked. In the case of Bharati Televentures (supra) it was held that once a party has invoked jurisdiction of a civil Court, it cannot subsequently rely upon the arbitration clause. Once jurisdiction of the civil Court is invoked by a party it tantamounts to abandonment of the arbitration Clause.

23. Similarly, this court in Roshan Lal Gupta v. Parasram Holdings Pvt. Ltd., 157 (2009) DLT 712, held as follows:

"It is not as if the civil Court per se does not have jurisdiction to entertain a suit emanating from a transaction subject matter of arbitration agreement. A civil Court cannot dismiss a suit instituted before it, even though found to be subject matter of an arbitration agreement, at the threshold. It is always open to the defendant to the suit to waive, give up and abandon the plea of arbitration and if that were to happen then the suit will continue before the civil Court. The manner in which the defendant in a suit which is the subject matter of an arbitration agreement is to set up the plea of arbitration has been prescribed in Section 8 of the Act. Such a plea has to be raised not later than when submitting the first statement on the substance of the dispute. If such a plea is not raised while submitting the first statement on the substance of the dispute, the defendant is thereafter barred from raising such a plea and if that be the position then it cannot be argued that even though the plea is not raised in the manner prescribed in Section 8 of the Act, it is open to the defendant thereafter also to contend that the suit is barred by virtue of Section 5 of the Act."

24. Hence, there is no merit in the said plea. As the defendants have chosen to contest the present suit on merits and have not filed any application under Section 8 of the Arbitration Act, the defendants have chosen to continue with the present proceedings.

25. The next plea of the defendants about the amount claimed by the plaintiff keeps changing is again devoid of merits. Even no attempt was made to explain as to how the amounts have been varying by the plaintiff.

26. Another plea has been raised in the applications relating to territorial jurisdiction of this court. This plea is also misplaced. A perusal of the two MOUs dated 12.04.2013 and 22.04.2013 clearly shows that they have been executed in Delhi. It is manifest that part of the cause of action arose in Delhi and this court would have territorial jurisdiction to adjudicate the suit.

27. The contours of granting leave to defend are well settled. Reference in this context may be had to the judgment of the Supreme Court in M/s Mechalec Engineers & Manufacturers v. M/s Basic Equipment Corporation AIR 1977 SC 577. In para 8, the Hon‟ble Supreme Court has held as follows:

"In Smt. Kiranmoyee Dassi and Anr. v. Dr. J. Chatterjee 49 C.W.N. 246 , Das. J.,after a comprehensive review of authorities on the subject, stated the principles applicable to cases covered by order 17 C.P.C. in the form of the following propositions (at p. 253) :

(a) If the Defendant satisfies the Court that he has a good defence to the claim on its merits the plaintiff is not entitled to leave to sign judgment and the Defendant is entitled to unconditional leave to defend.

(b) If the Defendant raises a triable issue indicating that he has a fair or bona fide or reasonable defence although not a positively good defence the plaintiff is not entitled to sign judgment and the Defendant is entitled to unconditional leave to defend.

(c) If the Defendant discloses such facts as may be deemed sufficient to entitle him to defend, that is to say, although the affidavit does not positively and immediately make it clear that he has a defence, yet, shews such a state of facts as leads to the inference that at the trial of the action he may be able to establish a defence to the plaintiff's claim the Plaintiff is not entitled to judgment and the Defendant is entitled to leave to defend but in such a case the Court may in its discretion impose conditions as to the time or mode of trial but not as to payment into Court or furnishing security.

(d) If the Defendant has no defence or the defence set up is illusory or sham or practically moonshine then ordinarily the Plaintiff is entitled to leave to sign judgment and the Defendant is not entitled to leave to defend.

(e) If the Defendant has no defence or the defence is illusory or sham or practically moonshine then although ordinarily the Plaintiff is entitled to leave to sign judgment, the Court may protect the Plaintiff by only allowing the defence to proceed if the amount claimed is paid into Court or otherwise secured and give leave to the Defendant on such condition, and thereby show mercy to the Defendant by enabling him to try to prove a defence."

As noted above, the defence raised by the defendants is bereft of any relevant particulars and is completely moonshine. The same is without merit.

Hence, the present application seeking leave to defend is dismissed. CS(COMM) 65/2017 In view of the above, a decree is passed in favour of the plaintiff and against the defendants for Rs.2,73,25,000/- jointly and severally. The plaintiff shall also be entitled to pendente lite interest @ 10 % per annum

simple from the date of filing of the suit till recovery. The plaintiff shall also be entitled to future interest from the date of passing of the decree till recovery @ 10% p.a. simple. The plaintiff shall also be entitled to costs.

JAYANT NATH, J.

OCTOBER 31, 2018/rb Corrected & released on17.11.2018.