Commercial Suit Archives

Bombay High Court| ‘Deposit receipt’ confirming accounts amounts to a written contract for a summary suit to be maintainable

Bombay High Court: In a commercial division summary suit instituted by Aziz Amir Ali (‘plaintiff’) who is former employee of a registered partnership firm (‘defendant 1’) which is engaged in the business of selling umbrellas for more than a century and has acquired goodwill in the market., for recovery of a sum of Rs. 1,20,00,000/- along with interest at the rate of 24% p.a. on the principal sum of Rs. 1 Crore, N.J. Jamdar, J. held the summary suit to be maintainable on confirmation of accounts through deposit receipt presented before Court.

The plaintiffs invested their lifetime savings with the defendants under the Collective Investment Scheme and invested a total sum of Rs. 1 Crore by cross payee cheques drawn in favor of defendant 1. In turn, the defendants issued credit notes and kept paying the money until January 2020 however stopped payment of interest from the month of February 2020. Thus, letters and legal notices were sent but to no response, present summary suit was filed.

Defendant 2 assailed the tenability of the suit under Order XXXVII Civil Procedure Code, contending that there is no contract between the plaintiffs and the defendants as alleged credit notes/deposit receipts do not constitute written contract.

The Court noted that the claim of the plaintiff is substantiated by the statements of bank accounts which evidence the transfer of amount to the account of defendant 1 through cheques. Particulars of the cheques are mentioned in the credit notes/deposit receipts, thus giving credence to the receipt of the amount of Rs. 1 Crore.

On the contention raised by the counsel for defendant that the transaction allegedly evidenced by credit notes does not partake the character of ‘deposit’, the Court placed reliance on Basant Lal Agarwal v. Lloyds Finance Ltd., 2003 SCC OnLine Bom 1129, to explain the distinction between ‘loan’ and ‘deposit’.

The Court observed that the credit note/receipt clearly acknowledges the receipt of the amount thereunder and the legal notices sent constitute a specific and unequivocal demand of the said amount.

On the thrust of the defense regarding absence of stipulation as to the ‘term of deposit’ implying no contract to repay the amount, the Court opined that the very acknowledgment of the receipt of the amount evidenced by the credit note/receipt gives rise to a contract to repay the said amount and the obligation becomes enforceable upon demand, e-ven in the absence of stipulation as to period of payment.

Placing reliance on Jyotsna K. Valia v. TS Parekh and Co., 2007 SCC OnLine Bom 413, wherein it was observed that a summary suit on the accounts duly confirmed by the defendants would be maintainable, thus, the Court did not accede to the challenge to the tenability of the suit on the ground that it is not based on a written contract.

The Court held that the defendants cannot be granted an unconditional leave to defend the suit when there is material to show that the receipt of the principal amount of Rs. 1 Crore is incontestable and borders on an admitted liability.

The Court directed defendants to repay a sum of Rs. 1 Crore within a period of six weeks from the date of this order, failing which the plaintiffs shall be entitled to apply for an ex-parte decree against the defendants after obtaining a non-deposit certificate from the Prothonotary and Senior Master of this Court.

[Aziz Amirali Ghesani v. Ibrabim Currim, 2022 SCC OnLine Bom 2300, decided on 14-09-2022]

Advocates who appeared in this case:

Mr. Rashmin Khandekar, a/w Ms. Karishni Khanna, i/b Amit Tungare, Ms. Jill Rodricks, Vinit Jain and Deep Dighe, Advocates, for the Plaintiffs;

Mr. Zain Mookhi, a/w Janhavi Doshi, i/b Maniar Srivastava Asso., Advocates, for the Defendant no. 2;

Mr. Jamshed Master, i/b Natasha Bhot, Advocates, for the Defendant no. 3;

Mr. Siddha Pamesha, a/w Declan Fernandes, i/b Purazar Fouzdar, Advocates, for the Defendant no. 4.

*Arunima Bose, Editorial Assistant has put this report together.

Case Briefs Supreme Court

Grant of leave to defend is the ordinary rule and denial is an exception; Supreme Court lays down detailed guidelines for leave to defend in summary suits

Supreme Court: While clarifying the law on leave to defend, the Division Bench of Vineet Saran and Dinesh Maheshwari*, JJ., held that even if there remains a reasonable doubt about the probability of defence, sterner or higher conditions could be imposed while granting leave to defend but, denying the leave would be ordinarily countenanced only in such cases where the defendant fails to show any genuine triable issue and the Court finds the defence to be frivolous or vexatious.

The plaintiff-respondent 1 filed the subject suit in terms of Order XXXVII of the CPC while stating itself to be a registered partnership firm manufacturing and supplying a wide variety of iron and steel products. The plaintiff contended that the defendant 1 represented itself as a real estate and infrastructure development firm while the defendant 2 represented itself as a contractor working with the defendant 1 for the construction work of its project namely ‘MIST’. The defendant 1 issued two cheques drawn on Axis Bank for a sum of Rs.14,72,269 and Rs. 13,34,319 while asking the plaintiff to present the cheques only after receiving intimation but no such intimation was received. Later on, the plaintiff issued a legal notice dated 28-01-2016 to the defendants demanding the dues and, upon their failure to make the requisite payment, filed the summary suit under Order XXXVII CPC.

Joint and Several Liability or a Blame Game?

The defendant 1 sought leave to defend with the contentions that it had no privity of contract and the purchase orders were issued only by the defendant 2; that the invoices in question were raised in the name of the defendant 2; that neither the purchase orders nor the invoices were bearing the signatures of the defendant 1; and that all the dealings were between plaintiff and defendant 2. On the contrary, the appellant-defendant 2 moved a separate application seeking leave to defend on the ground that the purchase orders were issued by him only on behalf of the defendant 1; and that the material supplied by the plaintiff was for the construction of project undertaken by defendant 1, who was the beneficiary of the said project.

Findings of the Courts below

The Trial Court held that no triable issues were raised by the defendants and declined their applications seeking leave to defend. Consequently, the suit was decreed in favour of the plaintiff for a sum of Rs. 89,50,244/- together with interest at the rate of 10% per annum with joint and several liability of the defendants to pay the decreetal amount.

The High Court held that the defendants were not entitled to leave to defend because the defences raised by them did not give rise to genuine triable issues; and the defences were frivolous and vexatious, raised only in order to deny the just dues of the seller of goods. Noticeably, the High Court made the following observations:

Though the cheques were issued by defendant 1, yet a suit would lie against defendant 2 as there was no such requirement in Order XXXVII CPC that the cheques which are issued for payments ought to be of the person against whom the liability is claimed. The High Court further observed that as per Section 2 (d) of Contract Act, 1872 consideration under a contract need not flow/pass only between the parties to a contract.
The High Court also observed that even if the cheques were not presented, the suit would be maintainable under Order XXXVII CPC because there was no such requirement that the cheque ought to be dishonored for filing a summary suit.

Maintainability of the Summary Suit

Considering the factual background of the case, the Bench held that the contention against maintainability of the summary suit in terms of Order XXXVII CPC could not be accepted as the matter was based on written contract arising out of written purchase orders. The question as to whether the appellant was acting only as an agent of defendant 1 in relation to the supplies could only be a matter of his defence and could not take away the entitlement of the plaintiff to file a summary suit.

Law on Leave to Defend

The Bench opined that while dealing with an application seeking leave to defend, it would not be a correct approach to proceed as if denying the leave is the rule or that the leave to defend is to be granted only in exceptional cases or only in cases where the defence would appear to be a meritorious one. Precisely, the Bench framed the following rules:

If the defendant satisfies the Court that he has substantial defence, i.e., a defence which is likely to succeed, he is entitled to unconditional leave to defend.
Where the defendant raises triable issues indicating a fair or bonafide defence, albeit not a positively good defence, he would be ordinarily entitled to unconditional leave to defend.
Where the defendant raises triable issues, but it remains doubtful if the defendant is raising the same in good faith or about genuineness of the issues, the Trial Court may impose conditions both as to time or mode of trial as well as payment into the Court or furnishing security to balance the requirements of expeditious disposal of commercial causes and of not shutting out triable issues.
Where the proposed defence appear to be plausible but improbable, heightened conditions may be imposed as to the time or mode of trial as also of payment into the Court or furnishing security or both, which may extend to the entire principal sum together with just and requisite interest.
In the case where any part of the amount claimed by the plaintiff is admitted by the defendant, leave to defend is not to be granted unless the amount so admitted is deposited by the defendant in the Court.

Conclusion

In the backdrop of above, the Bench concluded the following:

The Trial Court as also the High Court totally omitted to consider that the appellant-defendant 2 had been contesting its liability with the assertion that it had only been the contractor executing the work of defendant 1.
The conclusion that the defence raised by the appellant was frivolous or vexatious could only be treated as an assumptive one and lacking in requisite foundation.
The effect and impact of an admitted position of the plaintiff, that payments were indeed made from time to time by the defendant 1, seems not to have gone into consideration of the Trial Court and the High Court while denying leave to the appellant.
The same considerations, which weighed with the Courts to deny the leave to defend to the defendant 1, could not have been applied ipso facto to the case of the appellant; rather those considerations make out a case of triable issues qua the appellant.
The view that the appellant has indeed raised triable issues, particularly concerning its liability and the defence of the appellant could not be said to be frivolous or vexatious altogether.

Accordingly, the appeal was allowed and the impugned judgments and orders of the High Court as well as of the Trial Court, insofar relating to the appellant were quashed and set. The appellant was granted leave to defend; and the amount of Rs. 40,00,000/- deposited by the appellant was directed to be treated as a deposit towards the condition for leave to defend. The Trial Court was directed to pass appropriate orders for treatment of the said amount and then proceed with trial of the suit only qua the appellant-defendant 2 in accordance with law.

[B.L. Kashyap & Sons Ltd. v. JMS Steels & Power Corpn., C.A. No. 379 of 2022,

*Judgment by: Justice Dinesh Maheshwari

Appearance by:

Advocate for the Appellant: Apoorva Bhumesh

Kamini Sharma, Editorial Assistant has put this report together

Op Eds OP. ED.

Commercial Suits – A Ready Reckoner

The Commercial Courts Act, 2015, is an attempt to fast track the process of hearing and disposal of commercial suits. But to the students and the practitioners, who are not familiar with the trial court’s work, the procedural changes brought about by the Act may not be all that apparent, and to whom this ready-reckoner may be useful. This ready reckoner sets out the relevant stages in the filing and conduct of commercial suits. This is not intended to be a commentary on the entire Act and is only to serve as a guide to the procedures and stages to be followed in the filing and conduct of commercial suits.

1. Commercial Dispute

1.1 Ascertain whether the dispute is a commercial dispute to be filed in a commercial court[1].

2. Pre-institution Mediation

2.1 If there is a need for some urgent interim relief, skip this stage and go to next stage – Filing the commercial suit.

2.2 Where there is no need for any urgent interim relief, the plaintiff should submit an application to the District Legal Services Authority (DLSA) for pre-institution mediation[2].

2.3 In cases where the opposite party cannot be served with the notice for giving consent to participate in the mediation or in cases where, in spite of the service of such notice, the opposite party refuses to participate in the mediation, the DLSA shall treat the mediation process to be a non-starter and make a report accordingly to the applicant and the opposite party[3].

2.4 The DLSA must complete the mediation process within three months from the date of the application submitted by the plaintiff, which period may be extended by two months with the consent of the parties[4].

2.5 In cases where the opposite party participates in the mediation process, but there is no settlement possible, the mediator shall submit a failure report to the DLSA[5].

2.6 In cases where the opposite party participates in the mediation process and the parties reach a mutually agreed settlement, the mediator will draw up the terms of settlement in writing[6].

2.7 Such a settlement has the same status and effect an as arbitral award on agreed terms under Section 30 (4) of the Arbitration and Conciliation Act, 1996[7].

2.8 The period spent by the plaintiff in pre-institution mediation process shall not be computed for the purpose of ascertaining the limitation under the Limitation Act, 1963, for filing the commercial suit[8].

3. Filing the Commercial Suit

3.1 The conduct of a commercial suit is governed by the provisions of Civil Procedure Code, 1908 as amended by the Commercial Courts Act, 2015[9].

3.2 In cases where there is need for some urgent interim relief and the pre-institution mediation process has been skipped and in cases where the Mediator has submitted a failure report, the commercial suit has to be filed along with a Statement of Truth[10].

In cases where interest is sought in the commercial suit, the pleadings must contain the prescribed details[11].

4. Filing the Written Statement

4.1 The written statement must be filed within one hundred and twenty days from the date of service of summons, failing which the defendant shall forfeit the right to file it[12].

4.2 Mere denials shall not be sufficient. The defendant shall have to furnish reasons for denying any of the pleadings in the plaint[13].

4.3 If any allegation of fact in the plaint is not denied in the manner prescribed in Rule 3-A, such allegation of fact shall be taken to be admitted[14].

5. Disclosure, Discovery and Inspection of Documents

Disclosure

5.1 Along with the plaint, the plaintiff must file a list and photocopies of all documents in its power, possession, control or custody, pertaining to the suit[15].

5.2 The plaint must contain a declaration on oath from the plaintiff that all documents in its power, possession, control or custody pertaining to the case have been disclosed and copies thereof annexed with the plaint and that the plaintiff does not have any other documents in its power, possession, control or custody[16].

5.3 Along with the written statement, the defendant must file a list and photocopies of all documents in its power, possession, control or custody, pertaining to the suit[17].

5.4 The written statement must contain a declaration on oath from the defendant that all documents in its power, possession, control or custody pertaining to the case have been disclosed and copies thereof annexed with the written statement and that the defendant does not have any other documents in its power, possession, control or custody[18].

Discovery

5.5 Either the plaintiff or the defendant may, by leave of the court, deliver interrogatories in writing for the examination of the opposite party and the court should decide the application for leave to deliver interrogatories within seven days of its filing. The application will be dealt with in the manner prescribed in Order XI Rule 2 of the Code of Civil Procedure, 1908.

Inspection

5.6 Within thirty days of the filing of the written statement, extendable by the court by a further thirty days, the parties must complete inspection of all documents disclosed in the proceedings. If a party refuses to provide inspection of any documents, the other party may apply to the court for a direction to furnish such documents for inspection. The court should dispose of the application within thirty days of filing and if it is allowed, the inspection of the documents must be furnished within five days of the order allowing the application. A party will not be permitted to rely on a document, which it failed to disclose or of which inspection has not been given, except with the leave of the court[19].

Admission and denial of documents

5.7 Within fifteen days of completion of the inspection of documents, each party must submit a statement of admission or denial of all documents disclosed and of which inspection has been given[20].

Production of documents

5.8 Any party may issue a notice seeking production by the other party of such documents in the power, possession, control or custody of such other party which the party had omitted to disclose along with its pleadings. The other party must, within a maximum period of fifteen days of receipt of the notice, either produce such documents or justify its refusal or inability to do so. The court may draw an adverse inference against a party refusing to produce documents in cases where the court finds that the reasons for non-production of the documents are insufficient[21].

6. Case Management Hearing

6.1 Within four weeks of the filing of the affidavits of admission or denial of documents by all the parties to the commercial suit, the court must hold the first case management hearing and pass an Order framing the Issues, listing witnesses to be examined by the parties, fixing dates for filing of affidavits of evidence, recording of evidence, cross-examination of witnesses, filing of written arguments, submission of oral arguments and setting time-limits for parties and their advocates to address oral arguments. The court must ensure that the dates are fixed in such a manner as to ensure that the arguments are closed within six months from the first case management hearing, and must, as far as possible, ensure that the recording of evidence, including cross-examination of all the witnesses, is carried on a day-to-day basis. The court has wide powers in a case management hearing[22].

6.2 There are a few additional provisions for recording of evidence and submission or arguments.

7. Judgment

7.1 The court must pronounce judgment within ninety days of conclusion of arguments[23].

8. General

Costs

8.1 In relation to commercial suits, the court has the discretion to determine whether costs are payable by one party to another, the quantum of such costs and when they are to be paid, such costs to include costs of witnesses, legal fees and expenses, and any other expenses incurred in connection with the proceedings[24].

Summary Judgment

8.2 A commercial suit may be filed as a summary suit under the provisions of Order XXXVII of the Code of Civil Procedure, 1908[25].

8.3 Even in regular commercial suits, at any stage after service of summons on the defendant but prior to the framing of issues, either party may file an application for summary judgment and the court may give a summary judgment against the plaintiff if it considers that the plaintiff has no real prospect of succeeding on the claim or against the defendant if it considers that the defendant has no real prospect of successfully defending the claim[26].

8.4 Apart from either allowing or dismissing the application, the court may partly allow it or may pass a conditional order requiring a party to deposit a sum of money or provide some security[27].

Appeals

8.5 No civil revision application or petition is maintainable against any interlocutory order of a commercial court[28].

8.6 Any person aggrieved by the judgment or order of a commercial court may file an appeal within a period of sixty days from the date of such judgment or order to the commercial appellate court or to the Commercial Appellate Division of the High Court as the case may be[29].

† Practising advocate, Dhananjay Joshi Associates, Bengaluru

[1] Section 2 (1) (c) read with Section 2 (1) (i), Commercial Courts Act, 2015

[2] Section 12-A (1), Commercial Courts Act, 2015 read with the Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018

[3] Rule 3 (4) or Rule 3 (6), Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018.

[4] Section 12-A (3), Commercial Courts Act, 2015

[5] Rule 7 (1) (ix), Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018

[6] Section 12-A (4), Commercial Courts Act, 2015 read with Rule 7 (1) (vii), Commercial Courts (Pre-institution Mediation and Settlement) Rules, 2018.

[7] Section 12-A (5), Commercial Courts Act, 2015

[8] Second Proviso to Section 12-A (3), Commercial Courts Act, 2015

[9] Section 16, Commercial Courts Act, 2015

[10] Proviso to Section 26 of the Code of Civil Procedure, 1908

[11] Order VII Rule 2-A of the Code of Civil Procedure, 1908