Sidana Shoe Material v. Sumanglam Impex Private Limited

1. The appeal has been heard by way of video conferencing

2. On 24th May, 2021, this Court had directed the respondents to deposit Rs.32,00,000/- with the Registryof this Court within ten days. In the event the said amount was deposited,the Registry was directed to keep the same in a fixed deposit receipt initially for a period of one year. Subject to the deposit of the aforesaid amount,respondents were granted liberty to file an application seeking recall of the order dated 20th May, 2021 by which they were proceeded ex-parte. 2021:DHC:2176-DB

3. Today, Mr. Ritwick Shukla,learned counsel for the respondents states that the respondents haveno assetsand are not in a position to comply with the condition of pre deposit of any amount. He, however, states that the respondents have no objection to the present appeal being allowed and the matter being remanded back to the learned District Judge for further consideration.

4. He clarifies that during the pendency of the suit, therespondents had sold the plant and machinery as well as the factory premises to clear the outstanding dues of the banks and financial institutions alone. He emphasises that though Rs.[6] crores had been collected by way of sale proceeds, therespondents had depositedapproximately Rs. 7.[4] crores with the banks and financial institutions.

5. It is pertinent to mention that present appeal had been preferred against theimpugned final order and judgment dated 5th September, 2020 passed by the District Judge, Commercial Court-5, Central District, Tis Hazari Courts,Delhi, in C.S.(Comm) No.132/2019 (New No.366/2020), whereby the learned A.D.J.rejected the plaint of the appellant under Order VII Rule 11(d) of the Code of Civil Procedure,1908 on the sole ground that the appellant had failed to comply with Section 12-A of the Commercial Court Act. The relevant portion of the impugned order reads as under:- “.....The act of the plaintiff to straightway refusing to take recourse of the mediation proceedings and filing of the case without such genuine efforts is liable to be condemned and there is no hesitation to say that plaintiff itself had made mockery of the mandatory provisions of Section 12A of the Commercial Courts Act by not taking such mandatory steps in real sense prior to institution of the suit and refusing to get the mediation proceedings started because further Rule 8 of Commercial Courts (Pre Institution Mediation & Settlement) Rules 2018 puts an obligation upon the parties to participate in the mediation process in good faith with an intention to settle the dispute. Thus, thinking of the plaintiff that it is a useless provision and simple moving an application before DLSA will be suffice and then refusing to undergo mediation process by presuming that defendant will not join mediation proceedings in any situation or even if joins will not try to settle the matter is not appreciable and it infact point out that plaintiff was having no good faith and real bonafide intention. Plaintiff should have waited for the decision of mediator before making up mind that defendant in all circumstances would not join mediation proceedings or will frustrate the same. Plaintiff would be getting benefit of extension of limitation also for the period spent in such Pre-Institution Mediation but it was apparently in very hurry to file the suit by defeating the mandatory provisions. The act of the defendant in not participating or refusing to settle the dispute through mediation process initiated by the plaintiff, if any can go against him during trial also and the court can even ask the defendant to pay the expenses of the mediation to the plaintiff in such situation but atleast plaintiff should have waited the result of the Pre Institution Mediation process as required under law and should not have refused to get the proceedings started. Plaintiff even cannot avoid going for Pre-Institution Mediation on the ground that under the rules, it is required to pay few thousands rupees toward application fee and thereafter mediator fee as per Schedule II of Rule 11 of Commercial Court (Pre Institution Mediation & Settlement) Rules 2018. Compliance of mandatory provisions cannot be avoided on ground of any financial crunch which is also not a case of the plaintiff. Otherwise also, when the rules are putting an obligation upon the plaintiff to pay certain amount as mediation fees, then the same has to be complied with and it is for the Legal Services Authority to see whether this fees has to be compulsory taken or can be waived off. The plaintiff cannot be excused from avoiding the provisions of Section 12A of Commercial Court Act as it is a mandatory provision and not depends upon the entire discretion of the plaintiff. The word “shall not be instituted” makes it mandatory to go to mediation before filing of the suit in the court unless interim urgent relief is claimed and this word ‘shall’ cannot be treated as ‘may’. This provision otherwise also to be followed with good faith and real intention to get the matter settled and mere moving an application before DLSA as simple formality is not the object of this Section 12A of the Act. In my opinion, the act and conduct of the plaintiff in not complying with the mandatory provisions of Section 12A of Commercial Court Act before institution of the suit puts a bar not to proceed further with this case. There is a violation of this provision in real sense on the part of the plaintiff so the suit itself could not have been instituted or filed without such proper Pre Institution Mediation, hence it is liable to be rejected under Order 7 Rule 11 (d) CPC. No question of return of the plaint in such situation arises under Order 7 Rule 10 CPC because where the suit is barred by any law then the plaint has to be rejected and not to be returned.”

6. From a perusal of the file, it is apparent that the appellantdid file the pre-institution mediation before theCentral DelhiLegal Service Authority, which was referred to the Mediator. However, when the Mediator stated his inabilityto grant anyinterim relief in the absence of powers conferred upon him, thecounsel for the appellant refused to continue with the pre-institution mediation,as urgent reliefs were required to restrain the respondents from selling, disposing off, creatingany thirdparty interest in thefactoryland and building, plant and machinery,etc.

7. In our view the action of theappellant was fair and reasonable. This court is also of the opinion that theexpression “which does not contemplate any urgent interim relief” used in Section 12A of the Act did not apply to the appellant’s case sincethe respondentswere alleged defaulters who had allegedly issued cheques worth more than Rs. 32 Lakhs, which had been dishonoured.Further,once theappellant apprehended that the respondents were in process of disposing of their assets, the appellant had no other efficacious remedy except to file the suit in question along with applications under Order XXXVIIIRule 5 and Order XXXIX Rules 1 & 2 CPC – as they did.

8. Consequently, theimpugned order dated05th September, 2020 to the extent it rejects the appellant’s plaint under Order VII Rule 11 (d) CPC is set aside and the Trial Court is directed to proceedahead with the disposal of the suit. The Trial Court’s finding that the appellant’s suit is not barred under Section 69(2) of the Indian Partnership Act is left undisturbed.

9. Since, learned counsel for the appellant prays for urgent interim orders, this Court directs the Trial Court to dispose of all the pending applications as well as the suit as expeditiously as possible. To facilitate an expeditious disposalof the suit,the parties are directedto appear before the Trial Court on 26th August,2021.

10. With the aforesaiddirection,the present appeal along with pending application stands disposed of.

11. The order be uploaded on the websiteforthwith.Copy of the order be also forwarded to the learned counsel through e-mail. MANMOHAN,J NAVIN CHAWLA, J JULY 23, 2021 AS