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* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on : 01.09.2009
Pronounced on : 07.09.2009
+ CS (OS) No. 1382/2008, I.A. Nos.10628/2009, 11179/2008,
11191/2008
M/S FELEX ENTERPRISES PRIVATE LTD. ...... PLAINTIFF
Through : Mr. Krishnan Venugopal, Sr. Advocate with Mr. Anshu
Mahajan and Mr. Vikas Aggarwal, Advocates
Vs.
MR. V.SREENIVAS & ANOTHER ....... DEFENDANTS
Through : Mr. V.Shekhar, Sr. Advocate with Ms. Deepakshi Jain,
Advocate for Defendant No.1.
None for defendant No.2.
CORAM:
HON'BLE MR. JUSTICE S.RAVINDRA BHAT
1. Whether the Reporters of Local papers Yes
May be allowed to see the judgment?
2. To be referred to Reporter or not? Yes
3. Whether the judgment should be
reported in the Digest? Yes
HON'BLE MR. JUSTICE S.RAVINDRA BHAT
%
1. In this summary suit, under Order XXXVII, Code of Civil Procedure (hereafter, Order
37 and "the CPC", respectively), the plaintiff seeks a decree for the sum of Rs. 42,46,575/-
with interest @ 18% per annum.
2. According to the suit averments, the plaintiff engages itself in various mining
activities. The plaintiff contends that sometime in March, 2006, the first defendant
approached it, suggesting that the second defendant had entered into an agreement with him,
on 23-9-2004, to transfer 200 acres of mining areas in Hausadurga Taluk, Chitradurga
District, Karnataka (hereafter "the mining area"). The first defendant, states the plaintiff, met
with its officials in New Delhi, and further stated that the second defendant held a mining
CS(OS) No.1382/2008 Page 1
lease No. 1667/2260 for a total area of 600 acres, of which 200 acres were free; but were rich
in manganese ore deposits and that the area was free from disputes. It is claimed that
consequently, the plaintiff entered into a written agreement with the first defendant, based on
the latter's representation, on 26-5-2006. The second defendant confirmed the transaction. In
terms of the agreement, the first defendant was to facilitate the transfer of the lease, and also
do certain work to aid the plaintiff, in lieu of which, consideration was payable to him.
According to the plaintiff, an important consideration for its entering into the transaction was
the first defendant's assurance.
3. The plaintiff contends that when it entered into the agreement with the first defendant,
it was not informed about any existing or pending dispute with any third party, or between a
third party and the second defendant. In terms of the agreement, the plaintiff paid Rs.
31,00,000/- (Rupees thirty one lakhs) to the first defendant, and Rs. 85,00,000/- (Rupees
eighty five lakhs) to the second defendant. It is submitted that after entering into the
agreement, in May, 2006, the plaintiff's representative visited the site, and discovered that a
civil suit, No. 175/2005, titled ―Laxmi Cements and Ceramics -vs- Shri Parthasarathi‖ was
pending adjudication, and concerned a boundary dispute in relation to the 200 acres that were
the subject matter of the agreement dated 26-5-2006. It is contended that in the suit, the
second defendant's right and title was contested by Shri Parthasarathi. It is alleged that these
facts were not revealed to the plaintiff, at the stage of contract formation, in May, 2006.
According to the plaintiff, this amounted to fraudulent misrepresentation; one of the bases of
the contract was the absence of any dispute, in relation to the said 200 acres. The plaintiff
contends that the defendants obtained money from it under false pretences, as they were
aware of the pending litigation, in relation to land.
4. The plaintiff says that the defendant No. 1 was called upon to explain the fraud, as a
result of which he visited its (the plaintiff's) office, in Delhi, and, in order to discharge his
liability, issued two Cheques, drawn on a branch of the State Bank of Mysore,
Shankarapuram Branch, Bangalore. It is claimed that one Cheque (235105), dated 16-10-
2006, was for Rs. 21 lakhs, and the other, for Rs. 10 lakh, was No. 235108; it was dated 11-
12-2006. The plaintiff claims having presented the cheques to its banker, the Bank of
Rajasthan, Janpath Branch in New Delhi, which when sent for collection, were not honoured.
It is submitted that the plaintiff has filed criminal complaint proceedings in respect of the two
dishonoured cheques, in Delhi. It is submitted that the second defendant too, had issued a
cheque for Rs. 85,00,000/- to settle the plaintiff's claims, which too was not honoured. The
CS(OS) No.1382/2008 Page 2
plaintiff filed criminal proceedings against that defendant too; however, after receiving
summons in the said proceeding, the second defendant satisfied the plaintiff by issuing a
fresh cheque. The plaintiff claims relief against the first defendant, in terms of these
averments.
5. The defendant, entered appearance after service of summons. The plaintiff filed an
application for issuance of summons for judgment, under Order 37, Rule 3(4), being IA
11191/2008. The defendant's counsel was given a copy of that application. However, formal
summons were not issued by the court, on the plaintiff's application. In the meanwhile, the
defendant moved an application (IA 11179/2008) under Section 8 of the Arbitration and
Conciliation Act, (hereafter "the Arbitration Act") contending that the suit was not
maintainable, as the plaintiff was bound by an agreement, contained in the Agreement, dated
25-5-2006. The plaintiff denied the application. In these circumstances, when the application
was being heard, it was noticed by the court that the defendant had not been formally issued
with summons for judgment. Accordingly, the first defendant's counsel, and the plaintiff's
counsel agreed that notice on the said application for issuance for judgment would be deemed
to have been issued on the day of hearing before the court, i.e 7th August, 2007. The first
defendant, in these circumstances, moved an application for leave to defend, (IA 10628/2009)
under Order 37, Rule 3(5); notice was issued to the plaintiff. All these applications were
listed, and heard together.
6. In IA 11179/2008, it is contended by the defendant that the plaintiff cannot maintain
the suit, since the contract, or agreement, dated 26-5-2006, contains an arbitration clause. The
first defendant applicant contends that the parties had entered into the agreement, and
pursuant to it, he had discharged his obligations. He claims having obtained the
environmental clearance certificate, in terms of the agreement, but thereafter coming to know
that some boundary dispute existed with a third party, that was subject matter of court
proceeding. This, says the applicant, led to a demand by the plaintiff that he should return the
amounts, which he did by issuing cheques. The applicant alludes to a new understanding or
agreement having been arrived at between the parties, whereby the defendants were asked to
settle the boundary disputes within 30 days. The applicant submits having asked the plaintiff
not to present the two cheques, till the matter was settled, on 13-10-2006; he later asked his
banker not to clear the cheques because the purpose for which they were issued, had not
materialized. It is contended that the disputes pertain to, or are connected with the primary
agreement between the parties, embodied in the agreement dated 26th May, 2006, which
CS(OS) No.1382/2008 Page 3
contains an arbitration clause. The applicant submits that in these circumstances, the suit is
not maintainable.
7. In the leave to defend application, the defendant reiterates the allegations contained in
the application under Section 8 (IA 11179/08); he, besides argues that this court does not
have territorial jurisdiction to entertain and try the suit, since all material events occurred in
Bangalore; the cheque was drawn on a bank in Bangalore, the agreement was arrived at in
Bangalore, and the subject matter of the dispute, ie. control of mines, is also outside
jurisdiction of the court. The defendant also submits that he is entitled to other amounts, on
account his facilitating the lease and importantly, obtaining several government clearances.
He refers to an amount of Rs. 48 lakh, as due and payable, at the time of transfer of the lease,
and a further sum of Rs. 1.55 crore, being payable, due to environmental clearance being
obtained by him. It is submitted that the defendant had issued the two cheques, ―to put an end
to the contractual relationship under the tripartite agreement dated 26-5-2006...‖ and not in
discharge of any debt or liability. It is said that the plaintiff also has to pay Rs. 1.55 crore
towards its liability, under the contract. In these circumstances, it is submitted that the present
dispute is subject to an arbitration clause. The defendant also relies on the same arbitration
clause, and submits that this court lacks territorial jurisdiction to entertain and try the suit.
8. Besides reiterating the submissions made in the two application, learned senior
counsel for the defendant applicant also urged that they are without prejudice to the
contention that this court does not have territorial jurisdiction to try the suit, and existence of
arbitration clause, sufficient cause to grant leave has been shown, as there are some real and
substantial triable issues. It is contended, in this context, that the defendant had written to the
plaintiff, that environmental clearance had been obtained on 12-6-2006; considerable reliance
was placed on the minutes of meeting dated 1-9-2009, to say that even though cheques for the
amounts claimed in the suit, were issued, the original understanding stood superseded or
modified, and that the parities agreed that the boundary disputes would be settled. According
to the applicant defendant, further amounts were payable to him, by the plaintiff, in terms of
the original agreement, for the services rendered.
9. The plaintiff, in its reply to I.A. No. 11179/2008 relies upon the averments made by
the defendant and contends that the agreement dated 26.05.2006 ceased to be enforceable and
consequently there is no binding arbitration clause. It is stated that the defendant/applicant
has admitted his liability through a letter dated 01.09.2006 whereby it agreed that disputes
CS(OS) No.1382/2008 Page 4
existed between the second defendant and the third party and, therefore, he further agreed to
repay Rs.31 lakhs received earlier, with the objective of closing the entire transaction. The
plaintiff contends that the applicant defendant has suppressed the material fact whereby
according to it, the disputes have arisen inter se in relation to the agreement dated
23.09.2004. Reliance is placed upon a letter and a proceeding, i.e. Arbitration Application
No. 332/2008 filed before the City Civil Judge, Bangalore, where the defendant submitted
that all disputes are covered by an arbitration clause, existing in a supplementary agreement
dated 15.04.2005 (between the two defendants), be referred to arbitration.
10. It is submitted that the agreement dated 23.09.2004 and 15.04.2005 has no correlation
with the plaintiff; the latter entered into an agreement at the asking of the first defendant on
26.05.2006. Learned counsel emphasized that according to the representations in this
agreement and the clear understanding of parties, there were no disputes in relation to the
leased area. Subsequently, when it was discovered that such disputes existed, all parties
agreed to end the arrangement and, therefore, the plaintiff received the two cheques. The
plaintiff also points out to the terms of the minutes of meeting dated 01.09.2006, which it is
submitted, unambiguously states that the cheques in question had to be en-cashed.
11. So far as concerns merits of the defendant's application, seeking leave to defend (I.A.
No. 10628/2009), it is submitted that the first defendant had clearly agreed that cheques were
issued to put an end to the contractual agreement. The plaintiff denies that its liability to pay
any amount, for Rs. 1.55 crores or that it has any contractual obligation to do so. It is
contended that the defence sought to be urged does not disclose any triable issue and that in
view of the clear admission, by virtue of letter dated 01.09.1999 as well as minutes of
meeting, there is no defence and that what is pleaded is "moonshine".
12. On the question of jurisdiction, learned counsel for the plaintiff relied upon a
judgment reported as K.S. Wahi v. Ganga Exports 90 (2001) DLT 386 as well as Startech
Engcon Private Limited v. Bundelkhand University 2008 (147) DLT 276, and submitted that
according to the suit averments, particularly Para 11, the cheques were received in Delhi and
were presented by the plaintiff with its banker in Delhi. It is also submitted that the advice
about the dis-honour of the cheque was received by the plaintiff in Delhi. In the
circumstances, so far as the plaintiff is concerned, part of the cause of action having arisen in
Delhi, the suit is maintainable.
CS(OS) No.1382/2008 Page 5
13. From the above discussion, this Court discerns three questions, which have to be
addressed:-
(1) Whether the suit is not maintainable by reason of a subsisting arbitration clause;
(2) Whether this Court lacks territorial jurisdiction to entertain and try the suit;
(3) Whether the defendant, in its application has revealed triable issues entitling him
to the grant of leave under Order 37 Rule 3(5) CPC.
14. The narrative would reveal that certain essential facts are not disputed. They are:
(a) The plaintiff entered into an agreement with the first defendant on 26.05.2006
in respect of 200 acres of land, in District Chitradurga, Karnataka.
(b) Defendant No.2 at that stage was the original lessee in respect of the land as
well as another 400 acres; it held a mining lease. The said defendant has also
signed and confirmed the transaction.
(c) The role of the first defendant was as a "facilitator", he was entitled to certain
payments, including the sum of Rs.31 lakhs.
(d) The Defendant Nos. 1 and 2 had entered into an agreement previously on
23.09.2004, in respect of the land - as a result, the second defendant was made
a party to the agreement dated 26.05.2006, with the plaintiff.
(e) The agreement ( dated 26th May, 2006) recorded that the second defendant
(described as "Confirming party") represented:
―That they are the lessee of the leasehold area and are
enjoying peaceful and exclusive possession and control over
the leasehold area, having right, title and interest, which is free
from any encumbrances, i.e. mortgages, attachments,
―injunctions‖, Gifts, Wills, exchanges etc.‖
(f) The plaintiff later learnt about the boundary dispute in relation to the
leased area; the second defendant had filed a suit to restrain a third
party, who had disputed its possession. As a result of the above, the
parties entered into an arrangement whereby the Defendant No.1
CS(OS) No.1382/2008 Page 6
issued two cheques, for an aggregate amount of Rs.31 lakhs; the
Defendant No.2 also issued a cheque for Rs.85 lakhs.
15. The two amounts for which cheques were issued, in September, 2006, constituted a
consideration received pursuant to the agreement dated 26.05.2006 by the defendant. The
defendant contends that this Court should reject this suit because of a subsisting and valid
arbitration agreement. This submission is based on clause 12 of the agreement dated
26.05.2006, which reads as follows:
―In the event of any disputes in relation to or executed with the present
agreement, the same shall be referred to arbitration of sole arbitrator to be
appointed by second part and the arbitration proceedings shall be held at
Bangalore and shall be subject to Bangalore High Court jurisdiction.‖
16. Section 8 of the Arbitration and Conciliation Act, 1996 (hereafter referred to as the
"Act") is imperative; if a Court discerns or is informed during the course of pending
proceedings about the existence of an arbitration agreement, by which the parties have to
seek their remedies, they are to be relegated to it. There are few exceptions to this rule,
however; if the suit or existing civil proceeding embraces causes of action or concerns third
parties to the arbitration agreement, the Civil Court will not reject the claim (Sukanya
Holdings-vs- Jayesh Pandya 2003 (5) SCC 531). Similarly, the Supreme Court, in its 7-judge
Bench ruling in S.B.P. and Co. v. Patel Engineering Limited 2005 (8) SCC 618 ruled that the
existence and binding nature of arbitration agreement put forward by a party to oust the
jurisdiction of the Court is a valid subject matter for examination in the civil proceeding.
Considering the consequence of a claim for discharge of contract, taken by one party resisting
reference to arbitration, (though in the context of Section 11 of the Act), the Supreme Court,
in a recent ruling in National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd.,(2009) 1 SCC
267 stated as follows:
―Some illustrations (not exhaustive) as to when claims are arbitrable and when they
are not, when discharge of contract by accord and satisfaction are disputed, to round up
the discussion on this subject are:
(i) A claim is referred to a conciliation or a pre-litigation Lok Adalat. The parties
negotiate and arrive at a settlement. The terms of settlement are drawn up and signed
by both the parties and attested by the conciliator or the members of the Lok Adalat.
After settlement by way of accord and satisfaction, there can be no reference to
arbitration.
(ii) A claimant makes several claims. The admitted or undisputed claims are paid.
Thereafter negotiations are held for settlement of the disputed claims resulting in an
agreement in writing settling all the pending claims and disputes. On such settlement,
the amount agreed is paid and the contractor also issues a discharge voucher/no-
claim certificate/full and final receipt. After the contract is discharged by such accord
CS(OS) No.1382/2008 Page 7
and satisfaction, neither the contract nor any dispute survives for consideration.
There cannot be any reference of any dispute to arbitration thereafter.
(iii) A contractor executes the work and claims payment of say rupees ten lakhs as
due in terms of the contract. The employer admits the claim only for rupees six lakhs
and informs the contractor either in writing or orally that unless the contractor gives
a discharge voucher in the prescribed format acknowledging receipt of rupees six
lakhs in full and final satisfaction of the contract, payment of the admitted amount
will not be released. The contractor who is hard-pressed for funds and keen to get the
admitted amount released, signs on the dotted line either in a printed form or
otherwise, stating that the amount is received in full and final settlement. In such a
case, the discharge is under economic duress on account of coercion employed by the
employer. Obviously, the discharge voucher cannot be considered to be voluntary or
as having resulted in discharge of the contract by accord and satisfaction. It will not
be a bar to arbitration.
(iv) An insured makes a claim for loss suffered. The claim is neither admitted nor
rejected. But the insured is informed during discussions that unless the claimant gives
a full and final voucher for a specified amount (far lesser than the amount claimed by
the insured), the entire claim will be rejected. Being in financial difficulties, the
claimant agrees to the demand and issues an undated discharge voucher in full and
final settlement. Only a few days thereafter, the admitted amount mentioned in the
voucher is paid. The accord and satisfaction in such a case is not voluntary but under
duress, compulsion and coercion. The coercion is subtle, but very much real. The
―accord‖ is not by free consent. The arbitration agreement can thus be invoked to
refer the disputes to arbitration.
(v) A claimant makes a claim for a huge sum, by way of damages. The respondent
disputes the claim. The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests or settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here even if the claimant might have agreed for settlement due to financial compulsions and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or compulsion by the respondent. Therefore, the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration.‖
17. In the above case, the Supreme Court had examined the previous judgments, including P.K. Ramaiah & Co. v. National Thermal Power Corporation 1994 (Suppl) 3 SCC 126; Nathani Steels v. Associated Constructions 95 (Suppl) 3 SCC 324 and Narhati Jute Mills Private Limited v. Khayali Ram Jagan Nath AIR 1968 SC 522. It was held that once the parties settle their differences and put an end to their contractual obligations, the subsequent arrangement or contract, binds them contractually not to agitate the matter further unless the subsequent arrangement or settlement is shown to have been obtained under undue influence or demonstrably made under a mistake etc. These observations were made in the context of whether a contract, when discharged, is also deemed to have put an end to the arbitration clause. That such a proposition is both feasible, and has been established through the above decisions. What has to be seen is whether that is so, in this case.
CS(OS) No.1382/2008 Page 8
18. In this case, the defendant/applicant does not deny that the plaintiff came to know about the boundary dispute in relation to the leased land, which it was unaware of when the agreement dated 26.05.2006 was entered into. As a result, the plaintiff and the defendant reached an understanding, whereby the amounts paid by the former to the latter were refunded through cheques. The defendant, significantly, in the application under Section 8, states that ―it is further submitted that in the meanwhile there exists some boundary dispute in respect of the mining area, with their part and due to some misunderstanding, the plaintiff asked the defendant to refund the defendant's money to the plaintiff and original agreement and other related documents would be returned by the plaintiff to the defendant and thus, in order to question the contractual relation, the Defendant No.1 issued two cheques, for Rs. 21 lakhs and Rs.10 lakhs respectively, to the plaintiff at Bangalore. However, subsequently, on 01.09.2006, a new understanding was reached between the parties in the minutes of meeting dated 01.09.2006 whereby the defendants were asked to settle the boundary disputes of the mining lease areas within 30-45 days.‖
19. The understanding referred to by the defendant recorded in the minutes of meeting dated 01.09.2006, a copy of which is on the record; it reads as follows:
"PRESENT Sri Ramaswamy Sh. D.K. Srivastav Sri. V. Sreenivas Sh. Nirmal Tekriwal Sri. V. Prasad Sh. Sanjay Vishwakarma It has been agreed by M/s. Lakshmi Cement & Ceramics Ind: Limited, Mr. V. Sreeniwas & Mr. Tekriwal as under:-
1. Mr. Ramaswamy & Mr. Sreeniwas have agreed to settle the Bombay despite courts dispute with M/s. Sreeniwas Clays Ind: within 30-45 days and agreed to handover post dated cheque amounting to Rs.85 lakhs from Mr. Ramaswamy and Rs.21 lacs from Mr. V. Sreenivas after obtaining the letter from the agreement holder.
2. Mr. V. Sreeniwas after obtaining the letter from the agreement holder Mr. Tekariwal agreed to return all the original agreement papers after the encashment of the above cheques. And a separate agreement will be entered between Mr. Tekriwal, Agreement holder and Mr. V. Sreenivas for a balance of Rs.10 lacs due from Mr. V. Sreeniwas.‖
19. A joint reading of the averments and the documents extracted above would show that the defendant refers to a clear understanding whereby the plaintiff was to receive back the amounts on account of its discovering existence of a boundary dispute pertaining to the land;
CS(OS) No.1382/2008 Page 9 Para 1 of the minutes of meeting unequivocally stipulates the defendants' obligation to pay back the amounts through post-dated cheques. The latter part of these minutes also stipulate the return of the original agreement papers after encashment of cheques. What the Defendant No.1 is now seeking to project is that he wrote on 13.10.2006 and 22.11.2006, asking the plaintiff not to present the cheque till certain terms were sorted-out. He explains that in these circumstances, the "Stop Payment" advice was written to the bank on 29.11.2006, by him.
20. It is apparent that when the parties originally entered into an agreement on 26.05.2006; the plaintiff did not know about the existence of boundary disputes, in relation to the land. Once that fact came to light, it apparently asked the defendants to end the arrangement; consequently, the parties agreed on 01.09.2006 to close the chapter. The defendant says as much by urging that a new agreement had been recorded on 01.09.2006. He also issued two cheques in consideration of this understanding or agreement. The second defendant too issued a cheque for Rs.85 lakhs. The latter cheque was not honoured initially but after filing of criminal proceedings, the proceeds were paid to the plaintiff. All these facts unequivocally point to the plaintiff and the defendants consciously and mutually agreeing to end the transaction recorded by the agreement dated 26.05.2006. There was no other rationale or purpose for which the amounts were refunded. After all, the plaintiff originally wanted undisputed and exclusive possession; when it became aware of conditions to the contrary, the parties mutually agreed to terminate the agreement. This, in the Court's opinion constitutes a valid and binding discharge of the kind spoken of in National Insurance (supra). In the circumstances, it is not open to the defendant to fall back upon the terms of the original agreement and claim that there is an arbitration clause binding the parties to seek recourse to arbitration. The first point is accordingly ruled against the defendant.
21. As far as the issue of jurisdiction is concerned, the plaintiff has averred in the suit clearly to the cheques being presented by it with its banker in Delhi; the advice stating that the cheques were dishonoured, were also received by it in Delhi along with the instruments. This Court, in K.S. Wahi (supra) had dealt with an identical situation where the negotiable instruments were presented within the territorial jurisdiction of the Court and dishonoured, again in Delhi. In the circumstances, the Court held that jurisdiction subsisted; the view was endorsed and applied in Startech (supra). Therefore, it is held that a part of the cause of action arises within the jurisdiction of the Court. So far as the subsidiary argument that the parties had agreed that the disputes would be resolved in Bangalore, which would have exclusive jurisdiction, is concerned, it is found that once the Court holds - as it has done here CS(OS) No.1382/2008 Page 10
- that the basic agreement stood superseded or discharged, and the resultant arbitration clause did not bind them, the same clause cannot be used to oust the jurisdiction of the Court as the entire underlying transaction is deemed to have been discharged by mutual agreement of the parties. The second point is therefore, answered in favour of the plaintiff; this court has jurisdiction to entertain the present suit.
22. That brings the court to a consideration of the third and last issue, whether the defendant discloses a good or sufficient defence entitling him to leave, to defend these proceedings. The law as to what should be the approach of the court, while considering applications under Order 37, Rule 3(5) was stated by the Supreme Court, in Sunil Enterprises v. SBI Commercial & International Bank Ltd., (1998) 5 SCC 354:
―The position in law has been explained by this Court in Santosh Kumar v. Bhai Mool Singh, AIR 1958 SC 321; Milkhiram (India) (P) Ltd. v. Chamanlal Bros. AIR 1965 SC 1698; and Mechelec Engineers & Manufacturers v. Basic Equipment Corpn. AIR 1977 SC 577 The propositions laid down in these decisions may be summed up as follows:
(a) If the defendant satisfies the court that he has a good defence to the claim on merits, 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 possibly good defence, 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, if the affidavit discloses that at the trial he may be able to establish a defence to the plaintiff's claim, the court may impose conditions at the time of granting leave to defend -- the conditions being as to time of trial or mode of trial but not as to payment into court or furnishing security.
(d) If the defendant has no defence, or if the defence is sham or illusory or practically moonshine, 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, the court may show mercy to the defendant by enabling him to try to prove a defence but at the same time protect the plaintiff imposing the condition that the amount claimed should be paid into court or otherwise secured.‖
23. Santosh Kumar, referred to by the Supreme Court, in the above extract, establishes that what is a sufficient defence, is an elusive concept, and much would depend on the facts of each case. It was also held that the court seized of the question should not arrive at its conclusions arbitrarily, but based on some rationale.
24. The first defendant's defence, apart from the arbitrability of the disputes, and the issue of jurisdiction, is that some amounts were to be received, in terms of an understanding with CS(OS) No.1382/2008 Page 11 the plaintiff; reference is made to a letter dated 12-6-2006. It is contended that pursuant to the understanding, recorded in the minutes dated 1-9-2009, the said defendant had made arrangements and ensured that environment clearance or certificate was issued. It is therefore, argued that if leave is granted, the defendant would be able to show that not only was he not liable for the sum, forming subject matter of the suit, but was entitled to a larger claim. It is argued, in this regard, that the minutes or memorandum of understanding dated 1-9-2006 merely intended to assure the plaintiff that the entire disputes would be settled, and not that the amounts paid through post dated cheques were in fact payable. It is emphasized that said defendant's claim subsists and constitutes a valid defence, entitling to grant of leave, under Order 37, Rule 3(5). The defendant also relies on two letters written by him to the plaintiff, and states that a sum of Rs. 1.55 is due and owing from the plaintiff. Refusal to grant leave would, it is stated, cause irreparable prejudice.
25. The defendant, as noted in an earlier part of the order, does not deny the minutes of meeting dated 1-9-2006; that clearly establishes that a sum of Rs. 31 lakhs was due and payable to the plaintiff; post dated cheques were issued for the purpose. If the original reason for the plaintiff entering into an agreement were to be kept in mind, the defendant's arguments seem tenuous. The latter agreement, or minutes were consciously drawn with the intention of ending the contractual relationship, for the precise reason that the plaintiff could not get what it wanted; there were some boundary disputes, in relation to the leased land. The defendant's contention is that some amounts were payable, in terms of the original agreement, dated 26th May, 2006, since he ensured that environment clearance certificate was obtained. The plaintiff, on the other hand, submits that these are untenable defences, having no force, which are "moonshine".
26. As noticed earlier, the defendant does not deny that the contractual arrangement, entered into with the plaintiff, ended on 1-9-2006. The defendant states as much, in his pleading, that the said minutes were drawn:
―to put an end to the contractual relationship under the tripartite agreement dated 26-5-2006...‖;
The minutes, besides expressly talk of the sum of Rs. 31 lakh payable by the defendant. That this was the amount received by him, under the agreement, is not in dispute. The defendant, however, places reliance on an order of the Karnataka Pollution Control Board, revoking previous directions not to permit mining, by the second defendant, under provisions of the CS(OS) No.1382/2008 Page 12 Air (Control of Pollution) Act, 1981, dated 12-6-2006; he also relies on a letter written by the plaintiff, committing itself to paying Rs. 1.55 crores to him, three months after receiving environment clearance certificate.
27. The first order dated 12-6-2006 clarifies that a ban had been made by the Board, against mining activities, for the period 2006-2007; that ban was lifted. In these circumstances, it is unclear whether the parties agreed that vacation of a ban was to entitle the defendant to any amounts; besides, the latter has not even indicated, any prima facie material suggesting the role played by him in this regard; the leasee was the second defendant; the order was to its benefit. No documents or material were disclosed, whereby the second defendant or the plaintiff, authorized the first defendant to represent them, or any of them, and secure such orders; the first defendant only alleges that he "obtained" the certificate. There is, more importantly, no indication in the letter dated 24-6-2006 by the plaintiff, that the certificate referred to, was the order dated 12-6-2006. The first defendant has also not disclosed anything to suggest that these were the same, or that he had ever claimed any amounts. The second important aspect is that the agreement, dated 26th May, 2006 to which the second defendant too, was a party, did not mention about any amount other than Rs. 21 lakh payable to the first defendant. The first defendant does not explain how the terms of parties' commitment could be changed, unilaterally through a letter dated 24-6-2006, referring to a future event, without adverting to the previous binding written agreement, keeping the leasee, in the dark. Thirdly, the court is of opinion that all obligations - whether express or implied - were premised on the plaintiff securing the land, and eventually the leasehold rights. In the circumstances, having consented to put an end to the agreement itself, and take back the original papers, the first defendant's claim for Rs. 1.55 crores appears misconceived, and untenable, to say the least. The last aspect here is that assuming that the first defendant had a claim, as he suggests, there is nothing in the minutes of meeting dated 1- 9-2006, to suggest that he preserved the right to claim it. The plaintiff had relied on a letter dated 1-9-2009, whereby the first defendant committed to repaying the amount of Rs. 31 lakhs, to end the transaction; that letter clearly suggests the said defendant's acknowledgement of his liability. The first defendant's counsel did not dispute the correctness of the letter. The said document also, constitutes but an additional, though not the main reason for rejecting the first defendant's plea, about some other amounts being payable to him, by the plaintiff.
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28. It was not pointed out during the hearing, that at any stage, the first defendant ever invoked the arbitration clause, relied on by him; he has not also filed any claim, for the sum set up, as payable, in terms of the understanding.
29. The court, in view of the above reasons, is of opinion that the first defendant's application for "leave to defend" does not make out any reasonable or bona fide defence; it does not also show that if the court grants him leave, he might be able to make out some case, to defend the plaintiff's claim. The first defendant's pleas are "sham" and "illusory" and may be accurately summed up as "moonshine." Therefore, the court denies leave to defend, to the applicant first defendant.
30. The plaintiff has claimed Rs. 42,46,575/- which includes Rs. 31,00,000/- with 18% interest. Presumably interest is claimed on the basis of the transaction being commercial; similar pendente lite and future interest is sought. While the court is of opinion that the claim for Rs. 31,00,000/- is justified, the claim for the balance amount, at 18% cannot be sustained. Accordingly, the plaintiff is held entitled to 15% interest on the said sum of Rs.31,00,000/- with effect from 1-1-2007.
31. In view of the above discussion, I.A. No. 11191/2008, and the suit have to be decreed in terms of para 30; I.A. No. 11179/2008 and I.A. No. 10628/2009 are liable to be rejected. Let a decree for the sum of Rs. 31,00,000/- with interest at 15% from 1-1-2007, and pendente lite, as well as future interest, at the same rate, be drawn. The plaintiff is also entitled to costs; Counsel's fee is quantified at Rs. 55,000/-.
September 07, 2009 (S.RAVINDRA BHAT)
JUDGE
CS(OS) No.1382/2008 Page 14