Full Text
HIGH COURT OF DELHI
JUDGMENT
61159/2025 & CM APPL. 61194/2025 AAKASH CHATURBHUJ CHHABRIA ...Appellant
Through: Mr. Sandeep Choudhary, Adv.
Through: Ms. Krishna Parkhani, Adv.
HON'BLE MR. JUSTICE HARISH VAIDYANATHAN SHANKAR
1. The issue which arises for consideration in the present appeal is whether the learned Single Judge was justified in holding that the cause of action against all Defendants was composite and, consequently, in declining to direct separation of trial or return of the plaint qua Defendant No.4 for presentation before the competent court at Mumbai.
2. The present Appeal, preferred by the Appellant/Defendant No.4, assails the correctness of the order dated 25.02.2025 [hereinafter referred to as “Impugned Order”] passed by the learned Single Judge in CS(OS) 223/2022, whereby the learned Single Judge dismissed the Interlocutory Application being I.A. 5143/2024 filed by the Appellant under Order I Rule 3A of the Code of Civil Procedure, 1908 [hereinafter referred to as “CPC”] read with Order VII Rule 10 of the CPC and Section 151 of the CPC, seeking (i) separation of trial as against Defendant No.4, and (ii) transfer of the proceedings concerning him to the competent court at Mumbai.
FACTUAL MATRIX
3. For the sake of convenience, the parties are being referred to as they were arrayed before the learned Single Judge.
4. The Plaintiff instituted CS(OS) 223/2022 seeking recovery of Rs. 20,64,24,715/- (Rupees Twenty Crores Sixty-Four Lakhs Twenty- Four Thousand Seven Hundred and Fifteen Only) along with interest @ 9% per annum against Defendant Nos.[1] to 5, alleging that the said amount had been fraudulently siphoned off from the Plaintiff company through a series of transactions executed in collusion between the said Defendants.
5. The Plaintiff’s case, in substance, is that it engaged Defendant No.1 for procurement and execution of certain projects and payments. Defendant Nos.[2] and 3 were the Directors of Defendant No.1, whereas Defendant No.5 was a former employee of Plaintiff, alleged to have acted as an intermediary through whom substantial payments were transferred from the Plaintiff’s bank account under the garb of business transactions.
6. Defendant No.4, the present Appellant, who is the sole proprietor of M/s Atlantis Enterprises having his office at Mumbai, was impleaded on the allegation that several payments were routed to M/s Atlantis Enterprises without any lawful consideration, forming part of a fraudulent diversion of funds orchestrated by Defendant Nos.2, 3 and 5.
7. The plaint pleads separate HP Partnership Agreements, one with Defendant No.1 dated 17.10.2011 and another with Defendant No.4 dated 11.07.2013, and alleges that while Defendant No.1 and its directors received an amount of Rs. 15.64 crores, Defendant No.4 received Rs. 4.99 crores under separate invoices. The Plaintiff’s case is that these transfers, though made under different contracts, were part of a single fraudulent design facilitated by Defendant No.5, the Plaintiff’s erstwhile employee.
8. Upon service of summons, Defendant No.4 entered appearance and filed an application being I.A. 5143/2024 under Order I Rule 3A of the CPC read with Order VII Rule 10 of the CPC and Section 151 of the CPC, seeking separation of trial as against him and transfer of the proceedings to the competent court at Mumbai. It was contended that the Plaintiff had impermissibly combined two distinct causes of action, one against Defendant Nos.[1] to 3 and 5, and another against Defendant No.4, though they arose from separate contractual arrangements and transactions.
9. The Defendant No.4 asserted that, he being a resident of Mumbai and carrying on business exclusively through M/s Atlantis Enterprises situated in Mumbai, had no office, branch, or business operations within Delhi. It was, therefore, urged that no part of the cause of action arose within the territorial jurisdiction of this Court, and as such, the suit qua him was liable to be returned for presentation before the competent court at Mumbai.
10. The Plaintiff, in its reply to the abovementioned I.A., opposed the same and contended that the Defendants had acted in collusion and concert as part of a common fraudulent scheme. It was argued that although Defendant Nos.[1] and 4 had separate agreements and invoices, the transactions were interlinked and facilitated through Defendant No.5, who had misused his official position to divert funds from the Plaintiff’s account. It relied on documentary and forensic material (internal email-search report dated 22.10.2020, ledger entries, bank statements and the FIR/chargesheet) which, it is alleged, shows a common modus operandi, manipulation of the exception-approval process, resulting in payments to multiple recipients. Hence, the cause of action against all Defendants was composite and indivisible, and separation of trial was neither permissible nor warranted.
11. The learned Single Judge, upon hearing the parties and perusing the record, held that the suit disclosed a composite cause of action against all Defendants and that the alleged fraudulent diversion of funds could not be artificially segregated into distinct causes of action merely because separate agreements or payments were involved. It was further noted that the proceedings had already progressed, and no case for transfer was made out. Accordingly, the learned Single Judge dismissed the said application vide the Impugned Order dated 25.02.2025.
CONTENTIONS OF THE APPELLANT
12. Learned counsel for the Appellant/Defendant No.4 contended that the learned Single Judge erred in holding that the cause of action was composite. It was submitted that the Plaintiff itself, in the plaint, had categorically pleaded two distinct and independent transactions, one with Defendant No.1, and another with Defendant No.4, arising out of separate partnership agreements dated 17.10.2011 and 11.07.2013 respectively. Each of these agreements gave rise to separate obligations, invoices, and banking transactions, and were entirely unconnected in terms of their execution and performance.
13. It was further argued that the joinder of Defendant No.4 with Defendant Nos.[1] to 3 and 5 in a single suit amounted to misjoinder of parties and causes of action, contrary to the mandate of Order I Rule 3A of the CPC, which permits separation of trials where such joinder is likely to embarrass or delay adjudication of the suit. The learned Single Judge, it was submitted, failed to appreciate that the claim against Defendant No.4 was capable of being tried and determined independently, without reference to the transactions involving the other Defendants.
14. Learned counsel further submitted that Defendant No.4, being a sole proprietor carrying on business exclusively at Mumbai, neither has any office nor conducts any business within the territorial jurisdiction of this Court. The Plaintiff itself is based in Bengaluru; hence, no part of the cause of action can be said to have arisen in Delhi. Reliance was placed on Section 20(b) of the CPC, to contend that the suit could not have been validly instituted at Delhi, insofar as it concerns Defendant No.4, without first obtaining the leave of the Court as mandated therein. It was urged that no such leave was ever sought or granted, nor had the Appellant acquiesced to the institution of the suit at Delhi.
15. In support of this submission, reliance was placed on the decision of the Bombay High Court, Nagpur Bench in Manoramabai Moreshwar and Others v. Ibrahim Khan Bismilla Khan and Others[1], for the proposition that where some defendants reside outside the territorial jurisdiction of the Court in which suit is filed, jurisdiction over those non-resident defendants can be invoked only if (i) the leave of the Court is distinctly and specifically sought and granted under Section 20(b) of the CPC, or (ii) those non-resident defendants have clearly and unambiguously acquiesced in the institution of the suit. Learned counsel argued that the plaintiff did not obtain or plead any such leave in this case, and no factual basis exists to infer acquiescence by Defendant No.4. It was accordingly urged that Manoramabai (supra) squarely supports the submission that the joinder of Defendant No.4 without leave rendered the plaint defective insofar as it relates to him, and that the learned Single Judge ought to have directed the plaint to be returned or the trial to be separated.
16. Relevant paragraph in Manoramabai (supra) is reproduced below for reference – “Para 10. This section specifies the Court in which a suit is to be instituted, and normally a suit is to be instituted in the Court within the local limits of which a defendant or each of the defendants, where 1968 SCC OnLine Bom 24 they are more than one, actually and voluntarily resides or carries on business, or personally works for gain at the time of the commencement of the suit. Clause (b) of Section 20 of the CPC, contemplates a case where the defendants to a suit are more than one and any of them resides at the time of the commencement of the suit, or carries on business or works for gain resides within the jurisdiction of a Court and others do not. But in such a case, the suit to which nonresident defendants are parties can only be instituted either with the leave of the Court or if the defendants, who do not reside, or carry on business, within the jurisdiction of the Court acquiesce in such institution. Thus, before a suit can be said to have properly instituted in a Court of competent jurisdiction against the persons who do not reside within the jurisdiction of that Court, the plaintiff must either ask leave of the Court, or must satisfy the Court that such defendants have acquiesced in the institution of the suit in that Court. If any one of these conditions is not satisfied, the Court cannot be said to have jurisdiction to entertain the suit. Section 20 of the CPC, contemplates that leave must be distinctly and specifically sought and granted. If there is an order granting such a leave, which of course must be passed after hearing such defendants as may appear, then there can be no challenge to the territorial jurisdiction of the Court. But where such leave is not obtained, in a given case it may be that the defendants, who had a right to object, have acquiesced in jurisdiction and if such acquiescence is shown the trial of the suit will not be vitiated for want of jurisdiction. It is one thing to ask for leave and to obtain it which is a duty cast on the plaintiff and it is another to show that the defendants have acquiesced in jurisdiction. The second one has to be inferred from the conduct of the defendants. It is, therefore, difficult to appreciate how acquiescence which is sought to be shown by the plaintiff in this case could be relied upon by him to say that an order holding that there was acquiescence should be construed as an order granting leave by the Court. As stated above, the two conditions necessary to invest the Court with jurisdiction are entirely distinct and separate. It is, therefore, not possible to accept the contention of the learned counsel that the order dated 26-2-1960 must be construed as an order granting leave under Section 20, Clause (b) of the CPC.”
17. It was further contended that the learned Single Judge erred in assuming jurisdiction merely on the ground that some of the other Defendants are based in Delhi. The mere existence of a common employee (Defendant No.5) or overlapping timelines in the transactions cannot, by itself, create a composite cause of action, particularly where the underlying contractual obligations are distinct and governed by separate agreements.
18. Lastly, it was submitted that the Appellant had been prejudiced by the joinder of his case with the other Defendants, as the defence of collusion and conspiracy levelled jointly against all Defendants was unfounded insofar as he was concerned. The continuation of a joint trial, it was urged, would not only delay adjudication but also expose the Appellant to unwarranted prejudice from evidence and allegations meant for other Defendants. Accordingly, it was prayed that the Impugned Order be set aside, and the suit, insofar as it relates to Defendant No.4, be directed to be returned for presentation before the competent court at Mumbai.
CONTENTIONS OF THE RESPONDENTS
19. Learned counsel for the Respondent/Plaintiff supported the Impugned Order and submitted that the transactions in question form part of a single, continuous, and coordinated scheme of fraudulent diversion of funds from the Plaintiff’s account, orchestrated jointly by all the Defendants. The mere fact that the payments were made through separate agreements or invoices does not disintegrate the composite nature of the cause of action, which arises from a common design and conspiracy.
20. It was urged that Defendant No.5, a former employee of the Plaintiff, acted as the conduit for effecting fraudulent transfers in favour of Defendant Nos.[1] to 4. The involvement of the said employee, common banking channels through which the impugned transactions were routed, and contemporaneous time period of the transactions establish a clear nexus among all Defendants. Hence, the plaint discloses a single and unified cause of action against them collectively.
21. Learned counsel further submitted that the reliance placed by the Appellant on Manoramabai (supra) is misplaced, as the said decision turned on its own peculiar facts where no part of the cause of action had arisen within the jurisdiction of the Court and the plaintiff had admittedly not sought leave under Section 20(b) of the CPC. In the present case, the plaint specifically pleads a common course of conduct and a continuous chain of transactions, all forming part of a composite cause of action. Thus, the question of obtaining separate leave under Section 20(b) does not arise.
22. Reliance was placed upon the order dated 16.10.2023 passed by the learned Joint Registrar (Judicial) in CS(OS) 223/2022, wherein it was observed that the statutory period for filing the written statement by Defendant No.4 had expired, and accordingly, the right to file written statement stood closed. It was contended that the said order demonstrates that the Appellant had entered appearance, participated in the proceedings, and allowed its right to lapse, thereby submitting to the jurisdiction of the Court. No objection as to misjoinder or territorial jurisdiction was raised at that stage.
23. It was also submitted that the institution of a composite suit is consistent with the object of Order I Rule 3 of the CPC, which permits joinder of multiple defendants where common questions of law or fact arise. Directing separate trials, it was argued, would not only result in duplication of evidence and witnesses but also risk inconsistent findings on overlapping factual issues.
24. Lastly, learned counsel urged that no prejudice whatsoever has been caused to the Appellant by continuation of the joint trial. Having already filed its written statement and participated in the proceedings before the learned Single Judge, the Appellant cannot now be permitted to raise belated objections merely to delay adjudication. Accordingly, it was prayed that the Appeal be dismissed and the Impugned Order be upheld.
ANALYSIS & FINDINGS
25. This Court has considered the rival submissions advanced on behalf of the parties and perused the material on record. The issue which arises for consideration in the present appeal is whether the learned Single Judge was justified in holding that the cause of action against all Defendants was composite and, consequently, in declining to direct separation of trial or return of the plaint qua Defendant No.4 for presentation before the competent court at Mumbai.
26. The test for determining whether causes of action are distinct or composite has been settled in a long line of authorities. The law permits joinder of multiple Defendants in one suit where the right to relief arises out of the same act or transaction, or out of a series of acts or transactions so connected as to constitute the same transaction, and where common questions of law or fact are likely to arise. Order I Rule 3 of the CPC, being apposite, is reproduced below for ready reference – “3. Who may be joined as defendants.—All persons may be joined in one suit as defendants where— (a) any right to relief in respect of, or arising out of, the same act or transaction or series of acts or transactions is alleged to exist against such persons, whether jointly, severally or in the alternative; and (b) if separate suits were brought against such persons, any common question of law or fact would arise.” Whether the causes of action are composite or distinct depends not on the form of the transactions or the number of contracts, but on their substance and the nexus between them.
27. In the present case, the learned Single Judge, upon perusal of the pleadings, rightly observed that the Plaintiff’s allegations do not rest upon the independent obligations under the two partnership agreements dated 17.10.2011 and 11.07.2013, but rather upon the alleged misuse of those contracts and banking channels to perpetrate a coordinated fraud. The commonality of time period, the conduit (Defendant No.5), and the allegation that the funds originated from the same source in the Plaintiff’s account, prima facie disclose a composite cause of action.
28. The contention of the Appellant that the transactions were independent and unrelated, arising from separate agreements, is not borne out from the record. The Plaintiff has not sought reliefs severally under each agreement, but has claimed recovery of a consolidated amount alleged to have been siphoned off under a joint fraudulent scheme. The claim against Defendant No.4 is therefore not independent, but integrally connected with the claims against the other Defendants.
29. The territorial jurisdiction of a civil court must be tested with reference to Section 20 of the CPC. As per settled law, clauses (b) and
(c) thereof are alternative, and not cumulative, bases of jurisdiction.
The Court must therefore ascertain whether jurisdiction is attracted either by reason of any defendant carrying on business within the local limits of this Court [clause (b)], or because a part of the cause of action has arisen within such limits [clause (c)], but not both. At this stage, it would be apposite to refer to Section 20 (b) of the CPC, which reads as under –
30. Counsel for the Appellant relied upon the decision in Manoramabai (supra), particularly paragraph 10, to contend that leave under Section 20(b) of the CPC must be “distinctly and specifically sought and granted”, and that a Court cannot be deemed to have granted leave by implication or by an unrelated order. That decision is undoubtedly a correct statement of law on the need for express leave or clear acquiescence where a suit is instituted on the basis of residence or business of only some defendants within the Court’s jurisdiction.
31. However, Manoramabai (supra) turned on its own facts and does not operate as an absolute bar to the exercise of judicial discretion in every case where separate contracts or payments are involved. The present case is distinguishable for several reasons. First, the plaint before this Court does not rest solely upon the territorial presence of a defendant in Delhi; it pleads, and relies upon, documentary and forensic material, including the internal email-search report dated 22.10.2020, ledger entries, bank statements and the FIR/chargesheet, showing a common modus operandi, namely manipulation of the exception-approval process resulting in fraudulent payments to multiple recipients. The allegations thus disclose a single composite fraudulent design rather than isolated transactions. Second, unlike in Manoramabai (supra), where no part of the cause of action arose within the territorial limits of that Court, the present plaint specifically avers that part of the cause of action arose in Delhi, where certain transactions were effected and where Defendant Nos.[1] to 3 are based. Third, the existence of parallel criminal investigations treating the impugned transfers as connected further reinforces the Plaintiff’s plea of a composite cause of action.
32. Accordingly, while this Court accepts the legal proposition in Manoramabai (supra) that leave under Section 20(b) of the CPC must ordinarily be express and that acquiescence cannot be lightly presumed, on the facts and pleadings before this Court, the learned Single Judge was justified in concluding that the cause of action disclosed in the plaint is composite and indivisible. Once part of such composite cause of action has arisen within the jurisdiction of this Court, clause (c) of Section 20 is attracted, and the question of obtaining leave under clause (b) does not arise.
33. Further, the record reflects that Defendant No.4 entered appearance through counsel and participated in the proceedings before the learned Single Judge. The order dated 16.10.2023 passed by the learned Joint Registrar (Judicial) records that the written statement on behalf of Defendant No.4 was filed but returned under objection, and that no steps were taken for its re-filing within the statutory period. Consequently, the right to file the written statement stood closed. The Appellant’s participation in the proceedings and failure to raise any objection to jurisdiction or misjoinder at the earliest opportunity amount to acquiescence to the jurisdiction of this Court.
34. The apprehension of prejudice raised by the Appellant is also unfounded. The learned Single Judge has merely held that the cause of action is composite; no final determination on merits has been made. The Appellant retains full opportunity to establish his defence in the ongoing proceedings. On the contrary, directing separate trials on overlapping factual issues would risk inconsistent findings and duplication of evidence.
35. In view of the aforesaid, this Court finds no infirmity in the reasoning adopted by the learned Single Judge. The finding that the cause of action against all Defendants is composite is supported by the pleadings and the material on record. Consequently, the question of directing separation of trial or return of plaint qua Defendant No.4 does not arise.
36. Accordingly, the Appeal stands dismissed. All pending applications also stand dismissed. ANIL KSHETARPAL, J. HARISH VAIDYANATHAN SHANKAR, J. NOVEMBER 13, 2025 s.godara/pal