Full Text
HIGH COURT OF DELHI
JUDGMENT
BRIJESH KUMAR AGARWAL AND ORS. ..... Appellants
Advocates who appeared in this case:
For the Appellants : Mr Sanjeev Sagar, Mr Shivang Bansal and
Ms Nazia Parveen, Advocates.
For the Respondents : Mr Sharique Hussain, Advocate.
HON’BLE MR JUSTICE AMIT MAHAJAN
1. The appellants have filed the present intra-court appeal under Section 13 of the Commercial Courts Act, 2015 impugning a judgment dated 05.09.2019 (hereafter ‘the impugned judgment’) passed by the learned Single Judge, whereby the suit filed by respondent no.1 (hereafter ‘IFL’), being CS(COMM) 1265/2016, was decreed against the appellants, who were arrayed as defendant nos. 2 to 5 in the suit.
2. IFL (IFCI Factors Limited) had filed the aforementioned suit [CS(COMM) 1265/2016] as a summary suit under Order XXXVII of the Code of Civil Procedure, 1908 (hereafter ‘the CPC’), inter alia, claiming a decree for a sum of ₹4,78,37,930.22/- (Four Crore Seventy Eight Lakh Thirty Seven Thousand Nine Hundred Thirty Rupees And Twenty Two Paise Only) along with pendente lite and future interest at the rate of 13.75% per annum as well as costs towards the counsel’s fee assessed at ₹1,50,000 (One Lakh Fifty Thousand Rupees Only), against the appellants and respondent no.2, who were arrayed as defendants in the suit.
3. In its plaint, IFL claimed that it is a Government of India Undertaking and a Non-Banking Finance Company incorporated under the Companies Act, 1956. IFL claimed that it is, inter alia, engaged in the business of providing financial facilities including factoring of receivables as defined under Section 2(p) of the Factoring Regulation Act, 2011. Respondent no.2 (Shyam Forgings Private Limited – arrayed as defendant no.1 in the suit) was, at the material time, engaged in the business of steel processing, forging and rolling. It had approached IFL seeking Domestic Factoring Facilities. IFL entered into an “Agreement for the Factoring of Receivables” dated 07.05.2010 (hereafter ‘Factoring Agreement’) with respondent no.2, whereby it granted facility of domestic factoring of gross worth of ₹3,00,00,000/- (Rupees Three Crores Only) at a discount charge of 13.75% per annum.
4. IFL claims that separate Deeds of Guarantee dated 07.05.2010 were executed by the appellants (defendant nos.[2] to 5) in favour of IFL for securing the said facilities. In terms of the Factoring Agreement, IFL had disbursed 80% of the invoices raised by respondent no.2 in respect of three entities – (a) Kunj Forging Pvt. Ltd., (b) R.K.G. International Pvt. Ltd., and (c) Supreme Electrocast Pvt. Ltd. – aggregating ₹2,77,99,639.12/- (Rupees Two Crores Seventy Seven Lacs Ninety Nine Thousand Six Hundred Thirty Nine and Twelve Paise only). IFL claimed that it was entitled to recover a sum of ₹4,78,37,930.22/- (Rupees Four Crores Seventy Eight Lacs Thirty Seven Thousand Nine Hundred Thirty and Twenty Two Paise Only) including service charges and administrative charges. In addition, IFL claimed that the defendants were also liable to pay further pendente lite and future interest at the rate of 13.75%.
5. IFL stated that it had issued a notice dated 07.04.2016 to respondent no.2 calling upon it to pay the amount of ₹4,49,53,724.79/. It had, thereafter, by a notice dated 11.04.2016, invoked the guarantees furnished by the appellants and called upon them to pay the aforesaid amount of ₹4,49,53,724.79/- within a period of seven days of the receipt of the notice. IFL claimed that despite service of notices, the defendants did not pay the amount as demanded.
6. Insofar as respondent no.2 is concerned, it was disclosed that a petition (being CO.PET.487/2018 under Section 433 of the Companies Act, 1956) was filed by the Small Industries Development Bank of India seeking winding up of the respondent no.2 company and the Company Court had passed an order dated 26.02.2016, appointing the Official Liquidator as a Provisional Liquidator in respect of respondent no.2 company.
7. As stated above, IFL had filed the suit as a summary suit under Order XXXVII of the CPC. The appellants filed an application seeking leave to defend raising several defenses. First, the appellants claimed that IFL could not be treated as a factor as it had neither asserted nor enclosed any certificate of registration as a factor under the Factoring Regulation Act, 2011. Next, the appellants claimed that in terms of the Factoring Agreement, IFL had stepped into the shoes of respondent no.2 company in respect of the receivables discounted by it; therefore, IFL had the right to recover receivables from the debtors of respondent no.2 company directly. The appellants stated that IFL had limited recourse against respondent no.2 company, which would be equivalent to the amount remaining unpaid. But prior to taking recourse against respondent no.2 company, it would be necessary for IFL to take steps for recovery of the amounts due from the debtors.
8. The appellants claimed that they have no liability as the period of guarantee had expired. In addition, they claimed that they were not the guarantors of various debtors and were not liable to discharge their liability to IFL. It is important to note that the appellants also denied that the amount as claimed by IFL was payable and stated that the claim was arbitrarily calculated. Proceedings in the Suit
9. The suit was instituted on 30.08.2016 and was listed before the Court for the first time on 14.09.2016. The Court entertained the suit as a suit under Order XXXVII of the CPC and issued summons for appearance of the defendants (appellants and respondent no.2). The defendants filed the application under Section 8 of the Arbitration and Conciliation Act, 1996 seeking reference of the parties to arbitration. The said application was resisted by IFL on the ground that it had entered into the arbitration agreement only with respondent no.2 and not with the appellants.
10. In view of the above, the court dismissed the said application by an order dated 02.01.2018.
11. The appellants filed an application for leave to defend on 12.01.2018 seeking various grounds as briefly noted above.
12. On 02.11.2018, on a concession made by IFL, the Court directed that the suit be treated as an ordinary suit. In the circumstances, the Court granted the defendants thirty days time to file the written statement and a further thirty days time to IFL to file its replication. The parties were also directed to file the affidavits of admission/denial of each other’s documents before the next date of hearing and the suit was directed to be listed on 27.03.2019 for framing of issues.
13. However, the matter was not taken up on 27.03.2019 and the hearing was adjourned to 29.07.2019. On the next date of hearing, that is, on 29.07.2019, the counsel appearing on behalf of IFL was heard. The Court also noted that IFL had not filed a certificate under Section 3(1) of the Factoring Regulation Act, 2011 and expressed its displeasure regarding the same. The matter was directed to be listed on the next date, that is, on 30.07.2019. The order sheet indicates that on 30.07.2019, arguments of the counsel appearing for the appellants were heard and the matter was directed to be listed on 02.09.2019. The order sheet of 02.09.2019 indicates that the counsels were heard, and the matter was posted on 03.09.2019. The learned Single Judge also observed that he intended to dictate a judgment in the Court. However, the matter could not be taken up on 03.09.2019 and was directed to be listed on 05.09.2019. On that date, the impugned judgment was delivered. Submissions
14. Mr. Sagar, learned counsel appearing for the appellants submitted that the impugned judgment had been passed contrary to the procedure established by law. He submitted that the matter had been listed for framing of issues and the appellants were under the impression that preliminary objections were being heard in the context of framing of issues. Neither party had filed any affidavit of admission and denial of documents. He submitted that the submissions were made only with regard to the maintainability of the suit, as one of the preliminary objections raised by the appellants was that the suit was not maintainable. He submitted that the appellants were taken by surprise when the suit was decreed without framing of any issue or without a detailed hearing on merits. He submitted that apart from the points considered by the Court, there were other issues that were required to be struck and decided. He pointed out that the appellants had denied the amount as claimed and therefore, IFL was required to prove the calculation of the said amount. However, the suit was summarily decreed. He also pointed out that IFL had not filed any replication despite opportunities and had not controverted the assertions made in the written statement.
15. The learned counsel appearing for IFL countered the aforesaid submissions. He submitted that the Court had considered the defences raised on merit and had rendered a summary judgment. He submitted that in terms of Rule 1 of Chapter X-A of the Delhi High Court (Original Side) Rules, 2018, the Court was empowered to suo moto render a summary judgment. Reasons and Conclusion
16. The main question that arises for consideration of this Court is whether the learned Single Judge could proceed to suo moto render a summary judgment in a matter involving a commercial dispute. The said issue is squarely covered by the decision of this Court in Surya Foods and Agro Limited v. Om Traders & Anr.: RFA(OS)(COMM) 28/2019, decided on 20.01.2023. This Court had noted that Order XIII-A of the CPC as applicable to commercial suits, enables the courts to decide a claim in respect of a commercial dispute without recording oral evidence. However, it is necessary that the conditions as specified under Order XIII-A of the CPC are duly satisfied.
17. It is relevant to refer to Order XIII-A of the CPC and the same is set out below: “ORDER XIII-A SUMMARY JUDGMENT
1. Scope of and classes of suits to which this Order applies.—(1)This Order sets out the procedure by which Courts may decide a claim pertaining to any Commercial Dispute without recording oral evidence. (2) For the purposes of this Order, the word ―claim shall include— (a) part of a claim; (b) any particular question on which the claim (whether in whole or in part) depends; or
(c) a counterclaim, as the case may be.
(3) Notwithstanding anything to the contrary, an application for summary judgment under this Order shall not be made in a suit in respect of any Commercial Dispute that is originally filed as a summary suit under Order XXXVII.
2. Stage for application for summary judgment. – An applicant may apply for summary judgment at any time after summons has been served on the defendant: Provided that, no application for summary judgment may be made by such applicant after the Court has framed the issues in respect of the suit.
3. Grounds for summary judgment.— The Court may give as summary judgment against a plaintiff or defendant on a claim if it considers that–– (a) the plaintiff has no real prospect of succeeding on the claim or the defendant has no real prospect of successfully defending the claim, as the case may be; and (b) there is no other compelling reason why the claim should not be disposed of before recording of oral evidence.
4. Procedure. – (1) An application for summary judgment to a Court shall, in addition to any other matters the applicant may deem relevant, include the matters set forth in sub-clauses (a) to (f) mentioned hereunder:— (a) the application must contain a statement that it is an application for summary judgment made under this Order; (b) the application must precisely disclose all material facts and identify the point of law, if any;
(c) in the event the applicant seeks to rely upon any documentary evidence, the applicant must,––
(i) include such documentary evidence in its application, and
(ii) identify the relevant content of such documentary evidence on which the applicant relies;
(d) the application must state the reason why there are no real prospects of succeeding on the claim or defending the claim, as the case may be; (e) the application must state what relief the applicant is seeking and briefly state the grounds for seeking such relief. (2) Where a hearing for summary judgment is fixed,therespondent must be given at least thirty days’ notice of:— (a) the date fixed for the hearing; and (b) the claim that is proposed to be decided by the Court at such hearing. (3) The respondent may, within thirty days of the receipt of notice of application of summary judgment or notice of hearing (whichever is earlier), file a reply addressing the matters set forth in clauses (a) to (f) mentioned hereunder in addition to any other matters that the respondent may deem relevant:— (a) the reply must precisely––
(i) disclose all material facts;
(ii) identify the point of law, if any; and
(iii) state the reasons why the relief sought by the applicant should not be granted; (b) in the event the respondent seeks to rely upon any documentary evidence in its reply, the respondent must—
(i) include such documentary evidence in its reply; and
(ii) identify the relevant content of such documentary evidence on which the respondent relies;
(c) the reply must state the reason why there are real prospects of succeeding on the claim or defending the claim, as the case may be;
(d) the reply must concisely state the issues that should be framed for trial;
(e) the reply must identify what further evidence shall be brought on record at trial that could not be brought on record at the stage of summary judgment; and (f) the reply must state why, in light of the evidence or material on record if any, the Court should not proceed to summary judgment.
5. Evidence for hearing of summary judgment. – (1) Notwithstanding anything in this Order, if the respondent in an application for summary judgment wishes to rely on additional documentary evidence during the hearing, the respondent must:— (a) file such documentary evidence; and (b) serve copies of such documentary evidence on every other party to the application at least fifteen days prior to the date of the hearing. (2) Notwithstanding anything in this Order, if the applicant for summary judgment wishes to rely on documentary evidence in reply to the defendant‘s documentary evidence, the applicant must:— (a) file such documentary evidence in reply; and (b) serve a copy of such documentary evidence on the respondent at least five days prior to the date of the hearing. (3) Notwithstanding anything to the contrary, subrules (1) and (2) shall not require documentary evidence to be:— (a) filed if such documentary evidence has already been filed; or (b) served on a party on whom it has already been served.
6. Orders that may be made by Court.– (1) On an application made under this Order, the Court may make such orders that it may deem fit in its discretion including the following:— (a) judgment on the claim; (b) conditional order in accordance with Rule 7 mentioned hereunder;
(c) dismissing the application;
(d) dismissing part of the claim and a judgment on part of the claim that is not dismissed; (e) striking out the pleadings (whether in whole or in part); or (f) further directions to proceed for case management under Order XV-A. (2) Where the Court makes any of the orders as set forth insub-rule (1) (a) to (f), the Court shall record its reasons formaking such order.
7. Conditional order. – (1) Where it appears to the Court that it is possible that a claim or defence may succeed but it is improbable that it shall do so, the Court may make a conditional order as set forth in Rule 6 (1) (b). (2) Where the Court makes a conditional order, it may:— (a) make it subject to all or any of the following conditions:—
(i) require a party to deposit a sum of money in the Court;
(ii) require a party to take a specified step in relation to the claim or defence, as the case may be;
(iii) require a party, as the case may be, to give such security or provide such surety for restitution of costs as the Court deems fit and proper;
(iv) impose such other conditions, including providing security for restitution of losses that any party is likely to suffer during the pendency of the suit, as the Court may deem fit in its discretion; and (b) specify the consequences of the failure to comply with the conditional order, including passing a judgment against the party that have not complied with the conditional order.
8. Power to impose costs. – The Court may make an order for payment of costs in an application for summary judgment in accordance with the provisions of sections 35 and 35A of the Code.”
18. Sub-rule (3) of Rule 1 of Order XIII-A of the CPC contains a non-obstante clause, which expressly provides that the provisions of Order XIII-A of the CPC would not be applicable in respect of any commercial dispute that was originally filed as a summary suit under Order XXXVII. Thus, in the present case, the suit could not have been disposed of by a summary judgment under Order XIII-A of the CPC.
19. Order XIV of the CPC expressly requires the court to, at the first hearing of the suit, after completion of the pleadings and after examination under Order X Rule 2 of the CPC, ascertain material propositions of fact and law in respect of which parties are at variance. The court is thereafter required to strike the issues in respect of the matters in which the parties are at variance. However, prior to striking of the issues, any of the parties can apply to the court for a summary judgment if the conditions as stipulated under Order XIII-A of the CPC are met.
20. In terms of Order XV-A of the CPC, the court is required to hold a Case Management Hearing and the court can, at the said hearing, hear and decide any application filed by the parties for a summary judgment.
21. As stated above, in the present case, the suit could not be disposed of by a summary judgment in view of the express provisions of Sub-rule (3) of Rule 1 of Order XIII-A of the CPC.
22. Rule 1 of Chapter X-A of the Delhi High Court (Original Side) Rules, 2018, which empowers the court to suo moto render a summary judgment, is clearly in conflict with the provisions of Order XIII-A of the CPC. By virtue of Section 16(3) of the Commercial Courts Act, 2015, the provisions of the CPC, as amended by the Commercial Courts Act, 2015, would necessarily prevail in case of any conflict with any provision or rule made by the concerned High Court or any amendment to the CPC made by the State. Thus, as held by this Court in Surya Foods and Agro Limited v. Om Traders & Anr. (supra), the provisions of Order XIII-A of the CPC would override the provisions of Rule 1 of Chapter X-A of the Delhi High Court (Original Side) Rules, 2018.
23. This Court is also of the view that clearly there were disputes of facts that also arose in the suit. As pointed out by the learned counsel for the appellants, the appellants had denied the amount claimed by IFL and it was, thus, necessary for IFL to prove the same. As noted above, the impugned judgment was rendered before the parties had completed the admission and denial of the documents of the other party to the suit. It is necessary for the courts to strike the issues, as required under Order XIV of the CPC, before proceeding further to decide the same. It is clearly not open for the court to avoid the said procedure.
24. In Bright Enterprises Private Limited & Anr. v. MJ Bizcraft LLP & Anr.: 2017 SCC OnLine Del 6394, a Division Bench of this Court had noted that the provisions relating to a summary judgment, which enable the court to decide commercial disputes without recording oral evidence, are exceptional in nature and it is essential for the court to ensure that all stipulations under the said provisions are followed scrupulously. The Division Bench had faulted the procedure of delivering a suo moto summary judgment without following the elaborate procedure as provided under Order XIII-A of the CPC.
25. In view of the above, the impugned judgment is set aside and the suit is restored to the stage as obtaining on 05.09.2019. It is further directed that the suit be listed before the concerned Commercial Court on 27.03.2023 for further proceedings.
26. The appeal is allowed in the aforesaid terms.
VIBHU BAKHRU, J AMIT MAHAJAN, J MARCH 7, 2023