Archive

Monthly Archives: April 2013

“plaintiff is not required to pay the ad valorem court fee, as contemplated under Article 17 of the Schedule II of the Court Fee Act. He also stated that the plaintiff was only required to pay a fixedcourt fee and the same has been paid on the reliefs claimed, with a specific undertaking that upon determination of the amount the plaintiff would pay the court fee required, in accordance with law. It is further stated that the defendants are controlling the entire properties in a fiduciary capacity under the right of management to which the plaintiff had agreed. It is also contended that being the owners in law of the property, each owner would be in possession of every inch of the property, which is jointly owned by the parties. The mere fact that there is an exclusive possession of joint estate, would not amount to exclusion of other interested members of the family, as such, appropriate court fee has been affixed:.
———————————————————————————————————————————-
Smt. Sonu Jain vs Sh. Rohit Garg And Ors. on 12 January, 2006
Equivalent citations: 128 (2006) DLT 633
Author: S Kumar
Bench: S Kumar

JUDGMENT

Swatanter Kumar, J.

1. The plaintiff has filed a suit for partition of properties and rendition of accounts as stated in paragraph 5 of the plaint against the defendants. It is the case of the plaintiff that she is the daughter of Shri Ram Kishan Garg (deceased), while defendant No. 1 is the son, defendant No. 2 is the widow and defendant No. 3 is the daughter of the deceased. He died intestate on18.9.1988 at Delhi leaving behind the movable and immovable properties as stated in paragraph 5 of the plaint. It is the case of the plaintiff that she is entitled to one-fourth share in all the properties and thus, is also entitled to that share in the income from the said properties for all the years as the defendants have to come forward and divide the properties equally among all the heirs of the deceased father of the plaintiff. She had even written letters to them on 06.01.2005 and 18.01.2005 but of no consequence. The conduct of the defendants compelled her to file the present suit for partition and rendition of accounts.

2. The suit was contested by the defendants. They have filed different written statements. In the written statements, they have raised various preliminary objections as to the maintainability of the suit, including that the suit is barred under the provisions of Order 2 Rule 1 of the Civil Procedure Code; that the suit is liable to be rejected under Order 7 Rule 11 of the CPC for non-payment of proper court fee; that the plaintiff has no locus standi to file the suit for partition and that the suit is already barred under Section 23 of the Hindu Marriage Act.

3. On merits, it is stated that some of the properties, as mentioned in paragraph 5 were even purchased after the death of the deceased and that they cannot be, in any case, the subject matter of a suit for partition before this court. It is also the case of the defendants that late Shri Ram Kishan had expressed his desire to give a flat at Azad Apartments to the plaintiff after the entire estate being bequeathed in favor of defendant No. 2. However, as the said flat was rented out and could not be got vacated, property No. 17, Empire Estate, Town Hall, Mehrauli, New Delhi was purchased by defendant No. 2 for the plaintiff.

4. On 28th October, 2005, the court passed the following order:

I have heard the counsel for the parties. On the pleadings of the parties, following issues arise and are framed:

(i) Whether the deceased Sh. Ram Krishan Garg had not executed the will dated 07.09.1888, of which a valid and proper probate was granted in probate case No. 23/89? If so, what is its effect? – OPP

(ii) Whether the present suit of the plaintiff is barred by the principles of res judicata or constructive res judicata in view of the judgment in probate case No. 23/89? – OPD

(iii) Whether the plaintiff has not paid the proper court fee, as alleged in the preliminary objections by defendant No. 2 in his written statement? – OPD

(iv) Whether the suit of the plaintiff is barred by the Law of Limitation? – OPP

(v) Whether the plaintiff is entitled to claim partition of the properties as mentioned in para 5 and schedule A of the plaint? If so, to what effect, in which of the properties and in what share? – OPP

(vi) Whether the jurisdiction of this Court is barred with respect to the lands governed by Delhi Land Reforms Act? – OPD

(vii)Whether the plaintiff is in joint possession of the properties mentioned in paragraph 5 and Schedule A of the plaint? If so, to what effect? – OPP

(viii) Whether the assets and goodwill of M/s. R. K. Associates belonged exclusively to Shri Ram Kishan Garg? – OPP

(ix) Whether the plaintiff can lay any claim to the properties, partition of which is claimed on the strength of the will dated 07.09.1988? – OPP

(x) Whether the plaintiff is entitled to rendition of accounts from defendant Nos. 1 and 2? – OPP

(xi) Relief

No other issue arises or is framed.

Parties to file their list of witnesses within two weeks from today. List the case before the Joint Registrar on 08.12.2005.

Interim orders to continue.

IA Nos. 6810/05, 5166/05 & 5167/05 in CS(OS) No. 937/2005

IA Nos. 6810/05, 5166/05 & 5167/05 shall be listed for hearing before this Court on 23.11.2005, on which date it will also be examined whether issue No. 3 can be treated as preliminary issue and heard at that time.

5. The contentions raised on behalf of the defendants is that taking the averments made in the plaint to be correct, the Plaintiff has not valued the suit properly for the purposes of Court fee and jurisdiction and has not paid the required ad valorem court fee in accordance with law. Therefore, it is submitted that plaint of the plaintiff is liable to be rejected under Order 7 Rule 11 of the Code of Civil Procedure and the suit is liable to be dismissed. In this regard the learned counsel has relied upon various judgments of this Court in the cases of Sudershan Kumar Seth v. Pawan Kumar Seth ,Eastman Kodak Company v. M.R. Electronics and Ors. 56 (1994) Delhi Law Times 79, Jagdish Rai and others v. Smt. Sant Kaur , Prakash Wati v. Dayawanti and Ors. , Harjit Kaur and Ors. v. Jagdeep Singh Rikhy 2004 VII AD (Delhi) 567 and Sudhir Joshi (Shri) and Ors. v. Smt. Shanta Joshi and Ors. 2004 VI AD (Delhi) 131.

6. Referring to the afore-stated judgments and paragraphs 3,8,9,12,13 and 31 of the plaint, it is contended by the counsel for the defendants that the plaintiff has incorrectly valued the suit for the purposes of rendition of accounts, for the purposes of jurisdiction at Rs. 10 crores and Court fee at Rs.20/- and that the said payment of a fixed court fee is contrary to law. It is further contended that even on the relief of partition, the suit has been incorrectly valued for the purposes of court fee and jurisdiction in as much as the plaintiff is not in possession of any property or part thereof, either physically or even symbolically and has no control over any of the properties, which are subject matter of the present suit. The plaintiff, having valued the suit for that relief at Rs.10 crores, could not pay a fixed court fee of Rs. 20/- under Article 17 of Schedule II of the Court Fee Act, but is required to pay the ad valorem court fee on the said amount.

7. On the other hand, the learned counsel appearing for the plaintiff while relying upon the judgments in the cases of Aloysia Muttunayagam and another v. Margaret Brito AIR 1918 Privy Council 277 and Hardit Singh and Others v. Gurmukh Singh and others AIR 1918 Privy Council 1 contended that correct court fee has been affixed by the plaintiff on both the reliefs claimed and the plaintiff is not required to pay the ad valorem court fee, as contemplated under Article 17 of the Schedule II of the Court Fee Act. He also stated that the plaintiff was only required to pay a fixed court fee and the same has been paid on the reliefs claimed, with a specific undertaking that upon determination of the amount the plaintiff would pay the court fee required, in accordance with law. It is further stated that the defendants are controlling the entire properties in a fiduciary capacity under the right of management to which the plaintiff had agreed. It is also contended that being the owners in law of the property, each owner would be in possession of every inch of the property, which is jointly owned by the parties. The mere fact that there is an exclusive possession of joint estate, would not amount to exclusion of other interested members of the family, as such, appropriate court fee has been affixed.

8. In order to examine the merits of the respective contentions raised in relation to this preliminary objection relating to court fee, the plaint, as filed in this Court will have to be taken as correct. The averments made in the plaint constituting a cause of action, paragraphs relating to the pecuniary jurisdiction and the value stated by the plaintiff for the purposes of court fee and jurisdiction are the relevant paragraphs which the Court would have to look into for determining this issue. Reference can be made to the following paragraphs of the plaint:-

3. That Shri Ram Kishan Garg died intestate on 18.9.1988 at Delhi and was survived by the following legal heirs:

i. Plaintiff (Daughter)

ii. Defendant no.1 (son)

iii. Defendant no.2 (Wife)

iv. Defendant no.3 (Daughter)

8. That the plaintiff was minor at the time of death of her father and she was married in the month of February 1992. Defendant no.3 was also minor at the time of death of her father. She was married in 1999.

9. That as the plaintiff and defendant No.3 got married all the aforesaid properties remained under the management of defendants No.1 and 2 after the death of the father of the plaintiff.

12. That being the daughter of the deceased and the fact that the properties were being managed by the plaintiff’s mother and her brother, plaintiff trusted them and did not interfere with the management of the aforesaid properties or the recovery of the income there from by them as the plaintiff chershed the hope that defendants No. 1 and 2 on their own would come forward and divide all the properties equally among all the heirs of the deceased father of the plaintiff.

13. That out of respect and because of old tradition of Hindu family the plaintiff as the daughter left the management of all the properties in the hands of defendants No.1 and 2 in the belief that defendants No.1 and 2 on their own would give the share of the plaintiff by partition of the properties. The plaintiff did not wish to disturb here filial relations with her mother or with her brother by assailing her right to separate possession of here 1/4th share in the aforesaid properties as well as her right to share in the income/mesne profits of the properties.

31. That the suit has been valued for the purposes of court fee and jurisdiction as under:

a. RELIEF OF PARTITION

The suit has been valued for the purpose of jurisdiction at Rs. 100.00 crores on which a fixed court fee of Rs.20/- under Article 17 of Schedule II of the Court Fee Act has been affixed.

b. RELIEF OF RENDITION OF ACCOUNTS

The suit for the purpose of jurisdiction is valued at Rs. 10.00 crores which the plaintiff estimates as required under Order VII Rule 2 is likely to be found due to her.

For the purpose of Court fee it is valued at Rs.200/- on which a court fee of Rs.20 has been affixed as the plaintiff is not in a position to ascertain the exact amount of rental income, profits, sale proceeds which have been earned by defendants No.1 and 2 nor is there any objective material on the basis of which the same can be estimated by the plaintiff. The plaintiff submits that the plaintiff shall pay the additional court fee on the amount which will be found due to her on rendition of accounts and a decree is passed in her favor to recover the said amount from defendants No. 1 and 2.

33. That the value of the suit is more than Rs.100 crores. Therefore this Hon’ble Court has pecuniary jurisdiction to entertain the suit.”

9. A bare reading of the above paragraphs indicate that the plaintiff was not in physical possession of any of the properties and in fact, had been deprived of any role in the management of the said properties, which could give some control or a kind of joint possession, even symbolically, to the plaintiff. The only relevant paragraph wherein the plaintiff has claimed that they are in joint possession of all the properties, movable and immovable, mentioned in Schedule 8 of the plaint, is paragraph 25 which reads as under:-

25. That the plaintiff submits that the plaintiff is in joint possession of all the properties movable and immovable mentioned in Schedule ‘A’ annexed to the plaint.

10. Paragraph 25 apparently is in obvious variation to what has been stated in other paragraphs. The plaint has to be read as a whole. One vague averment, which in fact, destroys the specific paragraphs and stand taken by the plaintiff in other paragraphs and even the letters which were written prior to the institution of the suit, and are referred to in paragraphs 15 and 17, show that the plaintiff had been deprived of all the advantages of the left out property. Specific reference about the deprivation of all advantages and no steps being taken for a long time, was made by the plaintiff. If a plaintiff is not in actual physical possession of the property or is not even involved in joint management of the properties, it obviously would not satisfy the ingredients of a joint possession.

11. Once there is complete ouster even of a joint owner from possessory management and any other direct involvement in the affairs of the properties in question, it would be necessary for that person to pay the requisite ad valorem court fee and he would not be in a position to take advantage of paying a fixed court fee. In somewhat similar circumstances, in the case of Sudershan Kumar Seth (supra) the Court held as under:-

It is settled that in order to decide as to what relief has been claimed by the plaintiff, the whole of the plaint has to be read. From the perusal of the plaint if it can be inferred that the plaintiff is in possession of the any of properties to be partitioned, then the Court fees shall be payable under Article 17(6) of Schedule II of the Court fees Act i.e. fixed Court fees at the time of institution of the suit but if the conclusion is that the plaintiff is not in possession of any part of the properties then the plaintiff has to pay Court fees under Section 7(iv)(d) of the Court fees act i.e. on the value of plaintiff’s share. 1977 Rajdhani Law Reporter 54, Jamila Khatoon v. Saidul Nisa (supra), Smt. Prakash Wati v. Smt. Dayawanti (supra), Ms. Ranjana Arora v. Satish Kumar Arora (supra); Harjit Kaur v. Jagdeep Singh (supra); Rajiv Oberoi and Ors. v. Santosh Kumar Oberoi and Ors. can be referred to.

The plaintiff in the plaint has categorically stated in paragraph 11 that the defendant No.1 does not allow plaintiff access to the records relating to the business and other movable assets as well as immovable properties. In the same paragraph it has been alleged that he has 1/6th share in cash, jewellery and movable and immovable properties left behind by late Sh. O.P. Seth, which are at present in the power, custody and possession of defendant No.1 as custodian and agent on behalf of the plaintiff and defendant Nos. 2 to 5. In paragraph 14 of the plaint the plaintiff contends that he has legal right to possession, occupy and take custody of any of the assets of late Sh. O.P.Seth presently in the power and possession and in custody of defendant no.1. The plaintiff has also sought partition of the porperties by meets and bounds and consequently on the reading of entire plaint, inevitable inference that the plaintiff is not in possession of any movable and immovable properties of late Sh. O.P. Seth and he is claiming possession being a co-sharer.

12. In the case of Prakash Wati v. Dayawanti and Ors. (supra), keeping in view the reliefs claimed in the plaint and the fact that the plaintiff was not in possession of the properties, the Court directed payment of ad valorem court fee while holding as under:-

Counsel for the plaintiff has made reference to Jagdish Pershad v. Joti Pershad 1975 Rajdhani Law Reporter 203, wherein it has been laid down that keeping in view the peculiar facts of the case that where the plaintiff claims to be in joint possession of the property of which partition is sought, the plaintiff is to pay only fixed court fee as per Article 17 (vi) in Schedule II. There is no dispute about this proposition of law. Counsel for the plaintiff has then placed reliance on Neelavathi and Ors. v. N. Natarajan and Ors. , wherein the Supreme Court has laid down that it is settled law that the question of court fee must be considered in the light of the allegations made in the plaint and its decision cannot be influenced either by the pleas in the written statement or by the final decision of the suit on merits. It was held that the general principle of law is that in the case of co-owners the possession of one is in law the possession of all unless ouster or exclusion is proved. I think these observations of the Supreme Court go against the case of the plaintiff because in the present case reading of the whole of the plaint makes it clear that the plaintiff is alleging ouster from possession and thus, the plaintiff has to pay ad valorem court fee on the value of her share. I order accordingly. The deficiency in the court fee be made up within ten days and the suit be listed for further proceedings on August 21, 1990, in ‘Short Matters’.

Order accordingly.

13. A similar view was taken by the Court in the case of Harjit Kaur v. Jagdeep Singh (supra), where the court held as under:-

In view of the pleadings, I am satisfied that the Plaintiffs are neither in actual nor constructive possession of the property in suit. It cannot also be overlooked that the patriarch of the family who is the recorded titular owner thereof died in 1974 but the present suit has been filed as late as in 2001, i.e. a quarter of century later. It also appears that probate proceedings are pending since 1982 in which Defendant No.1 has set up exclusive claims thereto, based on the alleged Will of his Grandfather late Niranjan Dass Rikhy. Even this event has not galvanized the Plaintiff to file a suit forthwith. I am not presently concerned with the question of limitation but the conduct of the parties would be relevant in so far as ouster of possession and/or failure to be in joint possession of the suit property is concerned.

14. The condition precedent to availing the benefit of payment of fixed court fee is possession-actual, symbolic, and/or role in management of the property in question. Unless these ingredients have been clearly stated in the plaint and the Court is prima facie satisfied, the plaintiff would not be able to claim benefit of the payment of fixed court fee. The reading of the plaint and particularly the reliefs claimed by the plaintiff clearly shows that the plaintiff is not entitled to these advantages and is liable to pay ad valorem court fee in view of the judgments afore-referred. Common intention of management has to be inferred from the facts averred in the plaint and it obviously cannot be a presumption of law, but would ever be a factual matrix of the case to be pleaded and proved in accordance with law by, the parties.

15. Learned counsel appearing for the plaintiff while relying upon the concept of fiduciary relationship contended that the plaintiff had required the defendants to manage the property and the entire management was being held by the defendants in fiduciary capacity and as such equity imposed a duty upon the persons, in whom confidence was reposed by the plaintiff. It is also the contention that it was an entrustment by the plaintiff to the defendants to perform the job of management of the properties, as a joint venture. That being so, the joint possession has to be necessarily inferred. For this, he relied upon “Equity, Doctrines and Remedies, Second Edition, by R.P. Meagher, QC; W. M. C. Gummow and J. R. F. Lehane (published by BUTTERWORTHS).

16. This argument of the plaintiff is without any basis. Firstly, in the entire plaint, it is nowhere noticed that the plaintiff had required the defendants to manage the properties. Secondly, there was never an exhibited right of the plaintiff in the properties in question. Lack of specific pleadings would take the case of the plaintiff outside the ambit of the above principles. Fiduciary relationship again is a matter of fact and has to be established by specific pleadings. The reliance placed by the learned counsel for the plaintiff on the judgment of Privy Council in the case of Aloysia Muttunoyagam and another v. Margaret Brito (supra) is again of no consequence, as in that case the Court was concerned with the concept of adverse possession and it was held that between the co-owners, where a spouse inherits half the property, the co-owner cannot claim adverse possession against the other co-owner. That is not the issue in the present case. At this stage, the Court is not concerned with the exclusion of the rights of the plaintiff. The Court has to examine the plaint of the plaintiff as filed in the Court. If the averments made therein do not satisfy the above ingredients, then the plaintiff would be called upon to pay ad valorem requisite court fee. The plaintiff herself has chosen to value the suit for the purposes of relief of partition at Rs.100 crores and has also valued the suit for the purposes of jurisdiction at the same value, however, has opted to pay fixed court fee in terms of Article 17, Schedule II of the Court Fees Act.

17. Determination of value of suit for the purposes of court fee and jurisdiction is a kind of discretion to be exercised by the plaintiff on some rationale and proper basis. Besides that, it must fall in one of the prescribed heads of payment of ad valorem court fee and apparent arbitrariness and violation, with the intention of forum shopping or without complying with the requirements of law, in regard to payment of ad valorem court fee and invoking the jurisdiction of the court would not be permissible. Dealing with one such contention, the Court in the case of CS(OS) No. 689/2004 titled as Bharat Sanchar Nigam Ltd. v. All India Bharat Sanchar Nigam Executives Association (Regd.) and Ors. decided on 12th January, 2006 held as under:-

8. The law enunciated by the courts in the above judgments can hardly be a matter of legal controversy. What has to be seen is that in the light of the well-enunciated principles of law whether the plaintiff has correctly valued the suit for the purposes of court fee and jurisdiction? Fixation of value of suit is in the discretion of the plaintiff but once he exercises such discretion on bonafide belief, he is obliged to pay the court fee in accordance with the provisions of the Court Fees Act, 1870 and Schedule attached thereto. At this stage, it will be appropriate to refer to a recent judgment of this court in the case of Fox Software Tech. Ltd. v. Siltap Chemicals Ltd. {IA No. 2581/2004 in CS(OS) 1747/2003} decided on 25th August, 2005, on this issue wherein the judgments of the Supreme Court and the High Courts including Full Bench judgment of this court and the judgment of the Punjab and Haryana High Court relating to the same issue, were discussed at great length:-

According to the defendant, the plaintiff was thus aware of the definite amount due from the defendant to the plaintiff which have been specifically referred to by the plaintiff in the aforereferred paragraphs and as such the plaintiff ought to have paid the court fee on the sums which were definitely falls due as claimed by the plaintiff at the time of institution of the suit. The plaintiff could not have valued the suit whimsically and arbitrarily to avoid the payment of advalorem court fee in accordance with the provisions of law. For this purpose, he relied upon the judgments of the Supreme Court in Commercial Aviation and Travel Co.v. Ms.Vimla Pannalal and A.KA.CT. V.CT Meenakshisundaram

Chettiar v. A.KA.CT V.CT.Venkatachalam Chattiar , while learned counsel for plaintiff contended that the suit had been correctly valued for the purposes of court fee and jurisdiction as the amount claimed by the plaintiff would be dependent upon the true and correct rendition of accounts and upon determination of such amount, the plaintiff would estimate the court fee amount and as such the plaint cannot be rejected and the plaintiff cannot suffer on the sum mentioned in the plaint which is a mere reference and he relied upon the judgment of the Division Bench of this Court in the case of Commercial Aviation T.Co. v. H.L. Malhotra 1986 RLR 362. Section 7(i)(iv)(f) of the Court Fees Act provides for suits relating to amounts. It provides that the amount if payable under this act in such case would have to be according to the amount at which the relief sought is to be valued in the plaint by the plaintiff. It is the obligation of the plaintiff to state the amount at which he values the relief sought. Article 17 of Schedule II of the Act under Clause (i)(iv) states that every other suit where it is not possible to estimate at a money value the subject matter in dispute and which is not otherwise provided by this Act, the Court fee payable would be Rs.10/-.

The effect of both these provisions is that plaintiff has to show that it is not possible to ascertain the amount at the time of institution of the suit and then value the suit in terms of these provisions and pay the requisite court fee if not known at least of Rs.10/-. The real question that arises for consideration is whether the discretion given to the plaintiff is based on a definite criteria and it was not possible to ascertain the exact amount due to the plaintiff and recoverable at the time of institution of the suit. The estimation of the sum due would obviously dependent upon lack of exact determination. The plaintiff would be required to say in unambiguous language the ingredients of the above provisions as well as furnish an undertaking to the Court that on determination of the amount, the plaintiff would pay the requisite Court fee. The legislature commends nothing vainly and a good interpretation should be preferred over the bad interpretation, which would result in not further frustrating the cause of justice. A plaintiff must give definite reasons why the relief claimed by him is not capable of being computed in terms of exact money and should also support his estimation by some prudent principles to determine the valuation even for the purposes of jurisdiction. In the absence of such basic requirements, the exercise of such discretion by the plaintiff would normally will have to be termed as arbitrary. It is difficult to define qua modo of exercise of discretion by the plaintiff in its definite terms. But it could safely be stated in certain terms that exercise of such discretion has to be bonafide and within the prescribed norms of law. In the case of Minakshisunderam Chettiar (supra) the Supreme Court held as under :-

In the suit for accounts, the plaintiff is required to state the amount at which he values the relief sought. In suits for accounts it is not possible for the plaintiff to estimate correctly the amount which he may be entitled to, for, when the plaintiff asks for accounting regarding the management by a power of attorney agent, he might not know the state of affairs of the defendants’ management and the amount to which he would be entitled to on accounting. But it is necessary that the amount at which he values the relief sought for should be a reasonable estimate.

If on the materials available before it the court is satisfied that the value of relief as estimated by the plaintiff in a suit for accounts is undervalued the plaint is liable to be rejected under O.7 R.11(b). It is therefore necessary that the plaintiff should take care that the valuation is adequate and reasonable taking into account the circumstances of the case. In coming to the conclusion that the suit is undervalued the court will have to take into account that in a suit for accounts, the plaintiff is not obliged to state the exact amount which would result after the taking of the accounts. If he cannot estimate the exact amount, he can put a tentative valuation upon the suit for accounts which is adequate and reasonable. The plaintiff cannot arbitrarily and deliberately undervalue the relief.

A Full Bench of this Court in the case of Mahant Purshottam Dass and Anr v. Hari Narian and Ors. while accepting the

right of the plaintiff to value its suits contemplated under section 7(iv) of the Act but obviously subject to the limitation stated therein, it was further held that the question has to be determined on the basis of the allegations made in the plaint and the prayer made therein. Mere astuteness in drafting the plaint will not be allowed to stand in the way of the court looking at the substance of the relief asked for. In the case of Anil Rishi v. Gurbaksh Singh , the Court while looking into the substance of the plaint had directed the plaintiff to pay the court fee on the value reflected on the document in a suit for declaration and that such document was liable to be cancelled being result of a fraud and misrepresentation.

On the correct analysis of the judgments of the above court, it is clear that right of the plaintiff to value a suit for the purposes of court fee and jurisdiction and grant of relief cannot be absolutely arbitrary, unfounded and unreliable to the contents of the plaint. If the plaintiff oust to give some definite measures and sums in the plaint which according to the plaintiff are recoverable from the defendant, then defendant cannot be permitted to turn back to plead that the sum cannot be determined at the time of institution of the suit. In the case of H.L. Malhotra (supra), the Division Bench itself had relied upon the judgment of the Supreme Court in Minakshisundram Chettiar (supra) and held that the plaintiff is entitled to value the suit for the purposes of court fee at fixed value and for the purposes of jurisdiction, he can fix an estimated value which he thinks may be found due. This preposition of law can hardly be disputed. But what has to be seen is whether this judgment has any application to the present case. In the paragraph of the judgment above referred, the plaintiff had categorically stated that Commission would have worked out to about Rs.4 crores which was becoming payable immediately. Further more, it is stated that the defendant was supposed to make payment of Rs.40 lacs approximately to the plaintiff. This was apart from the commission from the Government orders from Orissa cyclone victims. Thereafter it is stated that sum of Rs.42 lacs was payable in relation to the matters of CWC orders. While referred to the meeting dated 23rd March, 2001, it is stated by the plaintiff that in the meeting he was told that the amount of approximately Rs.40 lacs was due and payable as commission and would be released only if the documents were signed. In face of these definite averments, it cannot be said that plaintiff was incapable of computing the figure exactly due to the plaintiff at the time of institution of the suit. Admittedly, the arrangement of commission between the parties cancelled on 23rd March, 2001 which is stated to be cause of action in favor of the plaintiff and against the defendant and by that time all transactions were known to the plaintiff and he was entitled to as per his own case 25% in terms of the commission agreement. The figures mentioned by the plaintiff in the plaint clearly show that plaintiff has actually claimed a sum of Rs.4 crores (para 19) + Rs.40 lacs (para 21) and another Rs.40 lacs (para 23). Thus the plaintiff ought to have paid court fee on these sums or on Rs.6 crores which have been estimated by him without giving any details. The estimation arrived at by the plaintiff appears to be without any basis and the plaintiff has taken recourse to complete arbitrariness in availing of the benefit available to him under the provisions of the Court Fees Act. Lack of bonafides on the part of the plaintiff would cloud this right available to the plaintiff and the Court would be compelled to examine the content of the plaint and require the plaintiff to pay the requisite ad valorem court fee on the actual amounts claimed in the suit. In view of the above discussions, I would allow the application of the defendant partly and in terms of provision to Order 7 Rule 11 CPC would grant an opportunity to the plaintiff to value the suit correctly as aforenoticed and pay the ad valorem court fee there upon within four weeks from the date of pronouncement of this order. The application is accordingly disposed of.

In the event, the plaintiff fails to comply with the conditions of this order, its plaint shall be liable to be rejected in terms of these provisions.

9. In the light of the above principles, now it will be proper to revert to the facts of the present case. The plaintiff has stated pecuniary value of the suit for 10 the purposes of jurisdiction at Rs. 25 lacs. How could it fix the value of suit for the purposes of payment of court fee at Rs.200/- is the basic question?

10. Section 7 of the Court Fees Act, 1870 provides for computation of fees payable in suits. Under Section 7(iv)(d), to obtain an injunction, the plaintiff shall state the amount at which relief sought is valued and under Section 8 of the Suits Valuation Act, 1887, the plaintiff is obliged to value the suit for the purposes of court fee and jurisdiction identically except for the exceptions provided under Section 7 of the Court Fees Act, 1870. According to the plaintiff, in terms of Section 7(iv)(d), it has stated the amount at which it has valued the reliefs sought. The prayed relief is that of prohibitory and mandatory injunction. What are the basis for causing an exception in deference to the statutory provisions of the Suits Valuation Act, 1887 or the Court Fees Act, 1870, requires consideration. According to the plaintiff, it has valued the suit in terms of Section 7(iv)(d) read with entry 17(vi) of Schedule II of the Court Fees Act as applicable to Delhi. Clause (vi) of entry 17 of Schedule II of Court Fees Act states that in “every other suit where it is not possible to estimate at a money-value the subject matter in dispute, and which is not otherwise provided for by this Act”, the plaintiff could pay the fixed court fee of Rs. 13/-. This argument besides being mis-conceived is also without any basis. It is the contention based upon mis-construction of law.

18. In the present case the plaint of the plaintiff clearly shows that plaintiff is neither in possession nor in control or management of the property, even jointly. The right of the plaintiff in regard to possession or management is apparently an admitted fact. Paragraph 25 of the plaint does not further the case of the plaintiff. The plaintiff therefore could not have valued the suit in regard to the relief of partition, for the purposes of jurisdiction at Rs. 100 crores while valuing the same for the purposes of court fee at a fixed rate of paying only Rs. 20/- in terms of Article 17 in Schedule II of the Court Fee Act. In these circumstances of the case and the plaintiff being not in a position, symbolic or otherwise, and having no role in the management of the said properties, the plaintiff would be required to pay ad valorem court fee at Rs. 100 crores, the valuation stated for the purposes of jurisdiction. The arguments raised on behalf of the plaintiff violates the known principles governing this aspect and the plaintiff is obliged to pay the court fee, ad valorem, in accordance with law.

19. The plaintiff cannot take any advantage of the judgment of the Supreme Court in as in that case there were averments and counter averments made by the parties in regard to exclusion from possession. In the present case the exclusion has certainly been admitted in the plaint, and the letters prior to the institution of the suit reproduced in the plaint, even demonstrate the same state of affairs. As far as the relief of rendition of accounts is concerned, the plaintiff has stated in the plaint that she is not in possession of any information which would help her in computing the amount due and payable to her in relation to the rent payable for the various properties, subject matter of the suit, as it is a pious hope of the plaintiff, as stated in paragraphs that she expects that on true and correct rendition of accounts the amounts may be Rs. 10 crores or more but as of today she cannot determine the exact amount due and payable to her. As such she has paid the fixed court fee with an undertaking to pay the balance court fee upon true and correct rendition of accounts.

20. In the case of Smt. Surinder Kaur and Ors. v. S. Rajdev Singh and Ors. [CS(OS) No. 1806/1999] decided on 27th October, 2005, the court held as under:-

16. Coming to the last contention raised on behalf of the defendants/applicants that the plaintiffs ought to have paid the ad valorem court fee in relation to the claim of rendition of accounts as well, it may be noticed that in the prayer clause, the plaintiffs have claimed a sum of Rs.54 crores which according to them could be payable to them in accordance with true and correct rendition for settlement of accounts. According to the applicants this sum of Rs.54 crores is based upon rational basis calculated by the plaintiffs and is not an imaginary figure. The plaintiffs, in fact, in their plaint have referred to the very basis of these Rs.54 crores including the letters exchanged between the parties. In this regard, reference has been made to some of the paragraphs in the plaint as well as paragraphs 15 and 32 of the replication filed by the plaintiffs.

17. Specific emphasis has been placed on the averments made in the plaint as well as paragraphs 26 and 29 of the reply to the preliminary objections and merits in the replication, that according to the plaintiffs, partners have invested about Rs. 50 crores in reconstruction and refurnishing of the hotel and also that the firm had invested more than Rs.50 crores in additions and alterations. Another averment made in the pleadings of the parties and the correspondence exchanged between them is that the defendants were ready to pay to the plaintiffs for such consideration in furtherance to the writing of the plaintiffs themselves. As such these provided definite data so as to value the suit for the purposes of court fee and jurisdiction. The plaintiffs could not have valued the suit for the purposes of pecuniary jurisdiction at Rs.54 crores and for the purposes of payment of court fee at a fixed sum of Rs.20/- . A reference was also made to the letter dated 13th May, 1999 in regard to the offer of the plaintiffs for valuation of the partnership properties. The learned counsel appearing for the applicant, while relying upon the judgment afore-referred as well as on the judgments of this court in the case of Wockhardt Veterinary Ltd. v. Raj Medicos and Anr. 1998 VI AD (Delhi) 1 argued that the plaint of the plaintiffs is liable to be rejected for non-payment of ad valorem court fee. With emphasis, he relied upon the following observations of the court:-

In the case before me the valuation for the purpose of jurisdiction has been quantified with the sole objective to confer jurisdiction on this Court as this Court will have pecuniary jurisdiction if the valuation of the subject matter is over Rs. 5 lakhs, otherwise in the normal course, the jurisdiction would lie with the District Judge. No doubt law provides that in case of relief for rendition of account when the amount is not ascertained the plaintiff cannot be asked to give a specific and ascertained figure of the amount on which relief is sought in the suit. But that does not give a license to the plaintiff to give a wholly arbitrary and unreasonable figure so as to divest a Court which has got the jurisdiction to try the suit and to invest a Court which for these aforesaid three lines would not have the jurisdiction to try the suit by giving a higher valuation so as to bring suit within the pecuniary jurisdiction of this Court.

18. On the other hand, the learned counsel appearing for the plaintiffs while relying upon the cases of Commercial Aviation and Travel Company and Ors. v. Mrs. Vimla Pannalal and Bombay Ammonia Pvt. Ltd. (supra) contended that it is only a fond hope of the plaintiffs that an amount of even more than Rs.50 crores may be due to the plaintiffs upon correct rendition of accounts by the defendants. There is no arbitrariness and the plaintiff’s claim would be covered under Rule 4, the provisions of Section 7(4) of the Court Fee Act and the exception to the Rule of the Suit being valued identically for the purposes of court fee and jurisdiction. The principle of law cited on either side can hardly be a matter of dispute. The plaintiffs cannot act arbitrarily in valuing the suit for the purposes of court fee and jurisdiction. Wherever the suit for rendition of accounts is filed and it is not practically probable for the plaintiff to exactly value the suit for the purposes of court fee and jurisdiction, he can avail of the benefit of payment of fixed court fee with an undertaking to make up the deficiency in payment of court fee, once the accounts are settled and a definite amount is determined by the court, which the plaintiff would be entitled to receive. The application of the plaintiff to pay court fee on that amount can fully be protected by decree being subject to payment of court fee at that stage, of course, limited in such suits.

19. In the present case, the reference to Rs. 40 or 50 crores firstly relates only to renovation and furnishing of the hotel and does not even on the bare reading of the plaint, reflect to be the entire value of the assets and accounts of the partnership or as a true and correct depiction of the settled account or share of an individual partner. The figure arrived at by the plaintiffs should be definite and essentially must be based upon such determining factors which ex facie indicate an acceptable value of the assets of the partnership and its business, including all its aspect. Merely because some figure has been indicated in the pleadings or correspondence exchanged between the parties in regard to renovation and furnishing of the hotel, would not determine the complete settled accounts of the partnership so as to make the plaintiffs liable to pay the ad valorem court fee on the fond hope or an estimated figure. The plaintiffs would obviously be liable to pay the court fee on final determination arrived at by the court upon true and correct rendition of accounts, as admittedly the defendants are carrying on the business, though their pleading is that the partnership has already been dissolved.

20. In the circumstances aforestated, I find no merit in this objection raised on behalf of the defendants. In view of my above detailed discussion, the applications of the defendants are partially allowed and the plaintiffs are directed to make good deficiency in payment of court fee in relation to the relief of mesne profits within one week from today. In the event the deficiency is not made good, the plaint of the plaintiffs shall be liable to be rejected under the provisions of Order 7 Rule 11 of the Code of Civil Procedure. Other objections are rejected.

21. IAs No. 3144/2005 and 3145/2005 are disposed of accordingly, while leaving the parties to bear their own costs in these applications.

21. Consequently, in view of the above principles, it will be quite permissible to allow the request of the plaintiff for paying fixed court fee at this stage by accepting the undertaking given in the relevant paragraphs of the plaint. As such objection taken by the defendant is without any merit in this regard and is therefore dismissed. While rejecting the above objection of the defendants in regard to relief of rendition of accounts, the plaintiff is directed to pay ad valorem court fee in regard to relief of partition.

Advertisements

“Where a plaintiff is in lawful or peaceful possession of a property and such possession is interfered or threatened by the defendant, a suit for an injunction simpliciter will lie. A person has a right to protect his possession against any person who does not prove a better title by seeking a prohibitory injunction. But a person in wrongful possession is not entitled to aninjunction against the rightful owner.”

—————————————————————————————————————————————-

 

Anathula Sudhakar vs P. Buchi Reddy (Dead) By Lrs & Ors on 25 March, 2008
Author: R Raveendran
Bench: R V Raveendran, P Sathasivam

CASE NO.:

Appeal (civil) 6191 of 2001

PETITIONER:

Anathula Sudhakar

RESPONDENT:

P. Buchi Reddy (Dead) By LRs & Ors

DATE OF JUDGMENT: 25/03/2008

BENCH:

R. V. Raveendran & P. Sathasivam

JUDGMENT:

J U D G M E N T

(Reportable)

CIVIL APPEAL NO.6191 OF 2001

R.V. RAVEENDRAN, J.

This appeal by special leave is by the defendant in a suit for permanent injunction. Puli Chandra Reddy and Puli Buchi Reddy were the plaintiffs in the said suit. Both are now no more. The Legal Representatives of Puli Chandra Reddy are Respondents 2 to 5 and Legal Representatives of Puli Buchi Reddy are Respondent 1 (i) to (iii). The suit related to two sites bearing no. 13/776/B and 13/776/C measuring 110 sq. yards and 187 sq. yards in Matwada, Warangal town, together referred to as the ‘suit property’.

2. Plaintiffs 1 and 2 claimed to be the respective owners in possession of the said two sites having purchased them under two registered sale deeds dated 9.12.1968 (Exs.A1 and A2) from Rukminibai. The plaintiffs further claimed that the said two sites were mutated in their names in the municipal records. They alleged that on 3.5.1978, when they were digging trenches in order to commence construction, the defendant interfered with the said work. The plaintiffs, therefore, filed suit OS No.279 of 1978 in the file of Principal District Munsiff, Warangal, for a permanent injunction to restrain the defendant from interfering with their possession.

3. Defendant resisted the suit. He claimed that suit property measuring 300 sq. yards in Premises No. 13/776 was purchased by him from K. V. Damodar Rao (brother of plaintiffs’ vendor Rukminibai) under registered sale deed dated 7.11.1977 (Ex.B1); that he was put in possession of the suit property by Damodar Rao; that the suit property had been transferred to his name in the municipal records; that he applied for and obtained sanction of a plan for construction of a building thereon; and that he had also obtained a loan for such construction from the Central Government by mortgaging the said property. According to him, when he commenced construction in the suit property, the plaintiffs tried to interfere with his possession and filed a false suit claiming to be in possession.

4. The trial court framed the following issues – (i) whether the plaintiffs are in exclusive possession of the suit sites (house plots)? (ii) whether the defendant has interfered with the possession of the plaintiffs over the suit plots? (iii) whether the plaintiffs are entitled to permanent injunction; and (iv) to what relief. The plaintiffs examined themselves as PW1 and PW2. They examined their vendor Rukminibai as PW4. Puli Malla Reddy and Vadula Ramachandram examined as PW3 and PW5, were the purchasers of two adjacent sites from Rukminibai. One of them (PW3) was the cousin of plaintiffs and was also the scribe and attestor in respect of the two sale deeds in favour of plaintiffs. Plaintiffs exhibited the two sale deeds dated 9.12.1968 in their favour as Ex.A1 and A2 and municipal demand notices and tax receipts, all of the year 1978 onwards, as Ex.A3 to A11. A plan showing the sites was marked as Ex.A12. Two letters said to have written by Damodar Rao were marked as Ex.A13 and A14. The sale deed executed by Rukminibai in favour of PW3 was marked as Ex.X1 and sale agreement in favour of PW5 was marked as Ex.X2. The defendant gave evidence as DW1 and examined his vendor Damodar Rao as DW2. He exhibited the certified copy of the sale deed dated 7.11.1977 in his favour as Ex.B1, a certified copy of mortgage deed executed by him in favour of Central Government as Ex.B2, the licence and sanctioned plan for construction of a house in the suit plot as Ex.B3 and B4 and the loan sanction proceedings as Ex.B5. He also exhibited a property tax receipt dated 12.2.1978 issued to Damodar Rao (Ex.B6), water charge bill dated 20.9.1978 for house No. 13/775 and 13/776 issued to Damodar Rao (Ex.B7), and property tax receipts dated 19.2.1972, 14.10.1973, 28.3.1970 and 13.11.1968 in the name of Damodar Rao (Ex. B8 to B11).

5. There was no dispute that the site purchased by the defendant from Damodar Rao under deed dated 7.11.1977 is the same as the two sites purchased by plaintiffs from Rukminibai under sale deeds dated 9.1.1968. There is also no dispute that the suit property is a vacant plot and it was originally portion of the backyard of the property bearing nos. 13/775 and 13/776, belonging to Damodar Rao, and that he was shown as registered owner of the said properties No.13/775 and 13/776 in the municipal records.

6. The plaintiffs led evidence to the effect that Damador Rao orally gifted the backyard portion of No.13/775 and 13/776, (separated from the main building by a dividing wall) to his sister Rukminibai in the year 1961, by way of ‘Pasupu Kumkumam’ (a gift made to a daughter or sister, conferring absolute title, out of love and affection, with a view to provide for her); that Rukminibai sold three portions of the gifted site to PW3, plaintiff No.1, plaintiff No.2 in the year 1968 and they were in possession ever since 1968; and that an agreement of sale was also entered in regard to another portion with PW5 as per Ex.X2. On the other hand, defendant led evidence denying that the suit property was given to Rukminibai by way of ‘Pasupu Kumkumam’. His vendor Damodar Rao gave evidence that he was the owner of the suit property and he sold it to the defendant under deed dated 7.11.1977 and put him in possession thereof. While plaintiffs alleged that plots were mutated in their names after their purchase, defendant alleged that the suit property purchased by him was a part of plot No.13/776 which stood in the name of Damodar Rao in the municipal records. Neither party produced the order of mutation or any certificate from the municipal authorities, certifying or showing mutation to their names. They only produced tax receipts. The tax receipts produced by plaintiffs showed that they had paid taxes from 1978 onwards, that is for a period subsequent to the sale by Damodar Rao in favour of defendant. Plaintiffs did not produce any tax paid receipt to show that the property stood in the name of Rukminibai. Nor did they produce any tax receipt for the period 9.12.1968 (date of purchase by plaintiffs) to 7.11.1977 (date of purchase by defendant). The defendant produced tax receipts to show that the suit property stood in the name of his vendor Damodar Rao till the date of sale in his favour.

7. The trial court decreed the suit by judgment dated 31.12.1985. Relying on the two sale deeds in favour of plaintiffs, the tax paid receipts and the oral evidence, it held that plaintiffs were in possession of the suit property from the date of purchase and the defendant had interfered with their possession. The defendant filed an appeal challenging the judgment and decree of the trial court before the Addl. District Judge, Warangal. The first appellate court held that the defendant was in possession of the suit property and the plaintiffs had not made out, even prima facie, either title or possession over the suit property. It was of the view that in the circumstances a mere suit for injunction was not maintainable, and at least when the defendant filed his written statement denying the title of plaintiffs and setting up a clear and specific case of title in himself, the plaintiffs ought to have amended the plaint to convert the suit into one for declaration and injunction. Consequently it allowed the appeal by judgment and decree dated 9.12.1991 and dismissed the suit. Being aggrieved, the plaintiffs filed SA No.29 of 1992.

8. The High Court by its judgment dated 18.1.1999 allowed the second appeal and restored the judgment and decree of the trial court. For this purpose, the High Court examined the evidence in detail and recorded the following findings:

(i) There was an oral gift of the backyard portion (No.13/776) by way of ‘pasupu kumkumam’ by Damodar Rao in favour of his sister Rukminibai in the year 1961. As a gift of an immovable property in favour of a daughter or sister by way of ‘Pasupu Kumkuman’ could be oral, the absence of any registered document did not invalidate the gift.

(ii) Damodar Rao negotiated with plaintiffs, for sale of the two sites, on behalf of his sister Rukminibai, representing that his sister was the owner thereof and attested the sale deeds executed by his sister Rukminibai in favour of plaintiffs as a witness and identified her as the executant of the sale deeds before the Sub-Registrar. Those acts of Damodar Rao supported the claim of Rukminibai that there was a oral gift. Alternatively, even if there was no gift in favour of Rukminibai, and Damodar Rao was the owner, the aforesaid acts of Damodar Rao showed that with his implied consent, Rukminibai represented to be the ostensible owner of the suit property and transferred the same to plaintiffs for consideration. This attracted the provision of section 41 of Transfer of Property Act, 1882 and therefore the transfers in favour of plaintiffs was not voidable at the instance of Damodar Rao or his successor in interest on the ground that Rukminibai was not the owner of the suit property.

The High Court consequently held that plaintiffs had established their title in regard to the two vacant sites purchased by them and drew an inference that possession was presumed to be with them by applying the principle of possession follows title. The High Court also held that it was not necessary to plaintiffs to sue for declaration of title, as the question of title could be examined incidental to the question of possession.

9. The said judgment is challenged by the defendant, in this appeal by special leave, on the following grounds :

(a) The suit for permanent injunction without seeking declaration of title was not maintainable on the facts of the case. At all events, the High Court ought not to have recorded a finding of fact on a seriously disputed and complicated issue of title, in a suit for a mere injunction.

(b) The first appellate court held that plaintiffs had neither established their title nor their possession and their remedy was to file a suit for declaration and consequential relief. The High Court, in a second appeal, ought not to have reversed the said decision of the first appellate court, by the process of examining and recording a finding on title, even though there was no issue regarding title.

(c) An oral gift by a brother to a sister was not permissible. At all events, such an oral gift even if permissible, can be made only at the time of a partition or at the time of marriage of the sister, with a view to making a provision for her. The High Court erred in holding that the there was a valid oral gift by Damodar Rao in favour of Rukminibai.

(d) There was no plea in the plaint about the ostensible ownership of Rukminibai or about any acts of Damodar Rao which demonstrated the consent of Damodar Rao to such ostensible ownership. Nor was there any plea about due and diligent enquiries by the plaintiffs regarding title before purchase. Therefore the High Court erred in holding that the sales in favour of plaintiffs were protected by section 41 of the Transfer of Property Act, 1882.

(e) In the absence of pleadings and an issue regarding title, the defendant had no opportunity to effectively lead evidence on the question of title.

(f) The High Court erred in equating plaintiffs’ failure to produce title deeds of their vendor to defendant’s failure to produce the title deeds of his vendor. The High Court overlooked the fact that there was no dispute that defendant’s vendor Damodar Rao was the earlier owner of the suit property and it was for the plaintiffs who had set up a case that their vendor Rukminibai derived title from Damodar Rao under an oral gift, to prove the said claim.

10. On the contentions urged, the following questions arise for our consideration in this appeal:

(i) What is the scope of a suit for prohibitory injunction relating to immovable property?

(ii) Whether on the facts, plaintiffs ought to have filed a suit for declaration of title and injunction ?

(iii) Whether the High Court, in a second appeal under section 100 CPC, examine the factual question of title which was not the subject matter of any issue and based on a finding thereon, reverse the decision of the first appellate court?

(iv) What is the appropriate decision?

Re : Question (i) :

11. The general principles as to when a mere suit for permanent injunction will lie, and when it is necessary to file a suit for declaration and/or possession with injunction as a consequential relief, are well settled. We may refer to them briefly.

11.1) Where a plaintiff is in lawful or peaceful possession of a property and such possession is interfered or threatened by the defendant, a suit for an injunction simpliciter will lie. A person has a right to protect his possession against any person who does not prove a better title by seeking a prohibitory injunction. But a person in wrongful possession is not entitled to an injunction against the rightful owner.

11.2) Where the title of the plaintiff is not disputed, but he is not in possession, his remedy is to file a suit for possession and seek in addition, if necessary, an injunction. A person out of possession, cannot seek the relief of injunction simpliciter, without claiming the relief of possession.

11.3) Where the plaintiff is in possession, but his title to the property is in dispute, or under a cloud, or where the defendant asserts title thereto and there is also a threat of dispossession from defendant, the plaintiff will have to sue for declaration of title and the consequential relief of injunction. Where the title of plaintiff is under a cloud or in dispute and he is not in possession or not able to establish possession, necessarily the plaintiff will have to file a suit for declaration, possession and injunction.

12. We may however clarify that a prayer for declaration will be necessary only if the denial of title by the defendant or challenge to plaintiff’s title raises a cloud on the title of plaintiff to the property. A cloud is said to raise over a person’s title, when some apparent defect in his title to a property, or when some prima facie right of a third party over it, is made out or shown. An action for declaration, is the remedy to remove the cloud on the title to the property. On the other hand, where the plaintiff has clear title supported by documents, if a trespasser without any claim to title or an interloper without any apparent title, merely denies the plaintiff’s title, it does not amount to raising a cloud over the title of the plaintiff and it will not be necessary for the plaintiff to sue for declaration and a suit for injunction may be sufficient. Where the plaintiff, believing that defendant is only a trespasser or a wrongful claimant without title, files a mere suit for injunction, and in such a suit, the defendant discloses in his defence the details of the right or title claimed by him, which raises a serious dispute or cloud over plaintiff’s title, then there is a need for the plaintiff, to amend the plaint and convert the suit into one for declaration. Alternatively, he may withdraw the suit for bare injunction, with permission of the court to file a comprehensive suit for declaration and injunction. He may file the suit for declaration with consequential relief, even after the suit for injunction is dismissed, where the suit raised only the issue of possession and not any issue of title.

13. In a suit for permanent injunction to restrain the defendant from interfering with plaintiff’s possession, the plaintiff will have to establish that as on the date of the suit he was in lawful possession of the suit property and defendant tried to interfere or disturb such lawful possession. Where the property is a building or building with appurtenant land, there may not be much difficulty in establishing possession. The plaintiff may prove physical or lawful possession, either of himself or by him through his family members or agents or lessees/licensees. Even in respect of a land without structures, as for example an agricultural land, possession may be established with reference to the actual use and cultivation. The question of title is not in issue in such a suit, though it may arise incidentally or collaterally.

14. But what if the property is a vacant site, which is not physically possessed, used or enjoyed? In such cases the principle is that possession follows title. If two persons claim to be in possession of a vacant site, one who is able to establish title thereto will be considered to be in possession, as against the person who is not able to establish title. This means that even though a suit relating to a vacant site is for a mere injunction and the issue is one of possession, it will be necessary to examine and determine the title as a prelude for deciding the de jure possession. In such a situation, where the title is clear and simple, the court may venture a decision on the issue of title, so as to decide the question of de jure possession even though the suit is for a mere injunction. But where the issue of title involves complicated or complex questions of fact and law, or where court feels that parties had not proceeded on the basis that title was at issue, the court should not decide the issue of title in a suit for injunction. The proper course is to relegate the plaintiff to the remedy of a full-fledged suit for declaration and consequential reliefs.

15. There is some confusion as to in what circumstances the question of title will be directly and substantially in issue, and in what circumstances the question of title will be collaterally and incidentally in issue, in a suit for injunction simpliciter. In Vanagiri Sri Selliamman Ayyanar Uthirasomasundareswarar Temple vs. Rajanga Asari  AIR 1965 Mad. 355, the Madras High Court considered an appeal arising from a suit for possession and injunction. The defendant contended that the plaintiff had filed an earlier suit for injunction which was dismissed, and therefore the plaintiff was precluded from agitating the issue of title in the subsequent suit, being barred by the principle of res judicata. It was held that the earlier suit was only for an injunction (to protect the standing crop on the land) and the averments in the plaint did not give rise to any question necessitating denial of plaintiff’s title by the defendant; and as the earlier suit was concerned only with a possessory right and not title, the subsequent suit was not barred. There are several decisions taking a similar view that in a suit for injunction, the question of title does not arise or would arise only incidentally or collaterally, and therefore a subsequent suit for declaration of title would not be barred. On the other hand, in Sulochana Amma vs. Narayanan Nair  1994 (2) SCC 14, this Court observed that a finding as to title given in an earlier injunction suit, can operate as res judicata in a subsequent suit for declaration of title. This was on the premises that in some suits for injunction where a finding on possession solely depended upon a finding on the issue of title, it could be said that the issue of title directly and substantially arose for consideration; and when the same issue regarding title is put in issue, in a subsequent title suit between the parties, the decision in the earlier suit for injunction may operate as res judicata. This Court observed :

“Shri Sukumaran further contended that the remedy of injunction is an equitable relief and in equity, the doctrine of res judicata cannot be extended to a decree of a court of limited pecuniary jurisdiction. We find no force in the contention. It is settled law that in a suit for injunction when title is in issue for the purpose of granting injunction, the issue directly and substantially arises in that suit between the parties. When the same issue is put in issue in a later suit based on title between the same parties or their privies in a subsequent suit the decree in the injunction suit equally operates as res judicata.”

This was reiterated in Annaimuthu Thevar v. Alagammal  2005 (6) SCC

202.

16. This Court in Sajjadanashin Sayed Md. Vs. Musa Dadabhai Ummer  2000 (3) SCC 350, noticed the apparent conflict in the views expressed in Vanagiri and Sulochana Amma and clarified that the two decisions did not express different views, but dealt with two different situations, as explained in Corpus Juris Secundum (Vol.50, para 735, p.229):

“Where title to property is the basis of the right of possession, a decision on the question of possession is res judicata on the question of title to the extent that adjudication of title was essential to the judgment; but where the question of the right to possession was the only issue actually or necessarily involved, the judgment is not conclusive on the question of ownership or title.”

In Vanagiri, the finding on possession did not rest on a finding on title and there was no issue regarding title. The case related to an agricultural land and raising of crops and it was obviously possible to establish by evidence who was actually using and cultivating the land and it was not necessary to examine the title to find out who had deemed possession. If a finding on title was not necessary for deciding the question of possession and grant of injunction, or where there was no issue regarding title, any decision on title given incidentally and collaterally will not, operate as res judicata. On the other hand, the observation in Sulochana Amma that the finding on an issue relating to title in an earlier suit for injunction may operate as res judicata, was with reference to a situation where the question of title was directly and substantially in issue in a suit for injunction, that is, where a finding as to title was necessary for grant of an injunction and a specific issue in regard to title had been raised. It is needless to point out that a second suit would be barred, only when the facts relating to title are pleaded, when a issue is raised in regard to title, and parties lead evidence on the issue of title and the court, instead of relegating the parties to an action for declaration of title, decides upon the issue of title and that decision attains finality. This happens only in rare cases. Be that as it may. We are concerned in this case, not with a question relating to res judicata, but a question whether a finding regarding title could be recorded in a suit for injunction simpliciter, in the absence of pleadings and issue relating to title.

17. To summarize, the position in regard to suits for prohibitory injunction relating to immovable property, is as under :

(a) Where a cloud is raised over plaintiff’s title and he does not have possession, a suit for declaration and possession, with or without a consequential injunction, is the remedy. Where the plaintiff’s title is not in dispute or under a cloud, but he is out of possession, he has to sue for possession with a consequential injunction. Where there is merely an interference with plaintiff’s lawful possession or threat of dispossession, it is sufficient to sue for an injunction simpliciter.

(b) As a suit for injunction simpliciter is concerned only with possession, normally the issue of title will not be directly and substantially in issue. The prayer for injunction will be decided with reference to the finding on possession. But in cases where de jure possession has to be established on the basis of title to the property, as in the case of vacant sites, the issue of title may directly and substantially arise for consideration, as without a finding thereon, it will not be possible to decide the issue of possession.

(c) But a finding on title cannot be recorded in a suit for injunction, unless there are necessary pleadings and appropriate issue regarding title [either specific, or implied as noticed in Annaimuthu Thevar (supra)]. Where the averments regarding title are absent in a plaint and where there is no issue relating to title, the court will not investigate or examine or render a finding on a question of title, in a suit for injunction. Even where there are necessary pleadings and issue, if the matter involves complicated questions of fact and law relating to title, the court will relegate the parties to the remedy by way of comprehensive suit for declaration of title, instead of deciding the issue in a suit for mere injunction.

(d) Where there are necessary pleadings regarding title, and appropriate issue relating to title on which parties lead evidence, if the matter involved is simple and straight-forward, the court may decide upon the issue regarding title, even in a suit for injunction. But such cases, are the exception to the normal rule that question of title will not be decided in suits for injunction. But persons having clear title and possession suing for injunction, should not be driven to the costlier and more cumbersome remedy of a suit for declaration, merely because some meddler vexatiously or wrongfully makes a claim or tries to encroach upon his property. The court should use its discretion carefully to identify cases where it will enquire into title and cases where it will refer to plaintiff to a more comprehensive declaratory suit, depending upon the facts of the case.

Re : Question (ii) :

18. Rukminibai did not have any title deed to the suit property. The case of plaintiffs during arguments was that the gift made in the year 1961, being by way of ‘Pasupu Kumkumam’ in favour of a sister by a brother, could be oral and did not require a registered instrument. But the property allegedly gifted to Rukminibai was not mutated in the name of Rukminibai in the municipal records, but continued in the name of Damodar Rao even after 1961. Damodar Rao was a resident of Warangal and staying in the house adjoining the suit property. Rukminibai was a resident of Hyderabad. Therefore, as on the date of sales in favour of the plaintiffs 9.12.1968, Rukminibai had neither any title deed nor actual possession. Nor was the property mutated in her name in the municipal records. The tax paid receipts produced by the plaintiffs related to a period subsequent to the execution of the sale deeds by Rukminibai in their favour and subsequent to the sale by Damodar Rao in favour of defendant. On the other hand, the suit property was sold in favour of the defendant by Damodar Rao who was shown as registered owner in the municipal records and who even according to the plaintiffs was the original owner of the property.

19. The first appellate court found that the evidence of plaintiffs and their witnesses as to the title of plaintiffs’ vendor Rukminibai was sketchy and inconsistent. It referred to three versions as to how Rukminibai got the property. The first version (as per PW1) was that the suit property belonged to Rukminibai’s father and he had given it to his daughter Rukminibai by way of ‘Pasupu Kumkumam’. The second version (as per PW2) was that after the death of Rukminibai’s father, there was an oral partition between K. V. Damodar Rao and Rukminibai and at that partition, the suit property was allotted to Rukminibai. But both PW1 and PW2 admitted that they did not make any enquiry with Rukminibai about her title. The third version (as per PW4 – Rukminibai) was that Damodar Rao made an oral gift of the plot in her favour by way of ‘Pasupu Kumkumam’ in the year 1961. She admitted that there was no special occasion for gifting the plot to her in the year 1961, as she was married long prior to 1961.

20. The suit sites were vacant plots. Both sides admitted that Damodar Rao was the original owner and that entire property stood in his name. The defendant claims title through Damodar Rao. The plaintiffs claim title through Rukminibai who neither has any deed of title nor any document in support of title or possession. Admittedly, there was no mutation in her name. This means that plaintiffs claim title through someone who claimed to be owner in pursuance of an oral gift in the year 1961 without the property being mutated in her name, whereas the defendant claims title from the person who was admittedly the original owner who was registered as owner in the revenue records. Necessarily, therefore, prima facie it has to be held that defendant had made out possession following title.

21. The plaintiffs and their witnesses gave evidence to the effect that Damodar Rao represented that his sister Rukminibai was the owner of the plot and negotiated for sale of the several portions thereof in favour of plaintiffs and PW3, and that Damodar Rao had attested the sale deeds in their favour and identified his sister as the vendor  executant before the Sub-Registrar, at the time of registration of the sale deeds. It is no doubt true that if that was the position, it is possible for them to contend that having regard to section 41 of Transfer of Property Act, when the ostensible owner Rukminibai sold the property with the implied consent of Damodar Rao, the defendant as a transferee from Damodar Rao could not contend that the sales were not valid. They also alleged that defendant was a close relative of Damodar Rao and the sale in favour of defendant was only nominal, intended to defeat their title. But Damodar Rao in his evidence denied having made the oral gift or having attested the sale deeds in favour of plaintiffs. He also denied having identified his sister at the time of registration of the sale deeds. Whether Rukminibai’s evidence and other plaintiffs’ witnesses should be believed or whether evidence of Damodar Rao should be believed on the question of title, can be examined only when there are necessary pleadings and an issue regarding title. Further, where title of plaintiffs is disputed and claim for possession is purely based on title, and the plaintiffs have to rely on various principles of law relating to ostensible ownership and section 41 of TP Act, validity of a oral gift by way of ‘pasupu kumkum’ under Hindu Law, estoppel and acquiescence, to put forth a case of title, such complicated questions could properly be examined only in a title suit, that is a suit for declaration and consequential reliefs, and not in a suit for an injunction simpliciter.

Re : Questions (iii) and (iv)

 

22. The High Court formulated the following as substantial questions of law:

“(i) Whether the plaintiffs’ suit for permanent injunction without seeking declaration of title is maintainable under law?

(ii) Whether the acts and deeds of Damodar Rao (DW-2) made the plaintiffs to believe that Rukminibai is the ostensible owner of the suit property and thus made them to purchase the suit property for valid consideration and, therefore, the provisions under Section 41 of the Transfer of Property Act are attracted and as such DW-2 could not pass on a better title to the defendant under Ex.B-1?

(iii) Whether the alleged oral gift of the suit property in favour of Rukminibai by DW2 towards pasupukumkum is legal, valid and binding on DW2 though effected in contravention of the provisions under Section 123 of the Transfer of Property Act?”

Having regard to the pleadings and issues, only the first question formulated by the High Court can be said to arise for its consideration in the second appeal. The second and third questions did not arise at all, as we will presently demonstrate.

23. The second question of law formulated by the High Court is a mixed question of fact and law, that is whether the factual ingredients necessary to claim the benefit of section 41 of the Transfer of Property Act were made out by plaintiffs. To attract the benefit of section 41 of TP Act, the plaintiffs had to specifically plead the averments necessary to make out a case under section 41 of the T.P. Act and claim the benefit or protection under that section. The averments to be pleaded were :

(a) that Rukminibai was the ostensible owner of the property with the express or implied consent of Damodar Rao;

(b) that the plaintiffs after taking reasonable care to ascertain that the transferor or Rukminibai had the power to make the transfer, had acted in good faith in purchasing the sites for valid consideration; and

(c) that therefore, the transfer in favour of plaintiffs by Rukminibai was not voidable at the instance of Damodar Rao or any one claiming through him.

These pleas were not made in the plaint. When these were not pleaded, the question of defendant denying or traversing them did not arise. In the absence of any pleadings and issue, it is ununderstandable how a question of law relating to section 41 of TP Act could be formulated by the High Court.

24. The third question of law formulated by the High Court, is also a mixed question of fact and law  firstly whether there was an oral gift and secondly whether the alleged oral gift was valid. Here again, there was no averment in the plaint in respect of any gift, oral or otherwise, by Damodar Rao in favour of Rukminibai or about its validity. Consequently there was no opportunity to the defendant to deny the oral gift in his written statement. There was no issue on this aspect also. Therefore, this question, which could not have been considered in the suit, could not also have been considered in the second appeal.

25. The High Court, in the absence of pleadings and issues, formulated in a second appeal arising from a suit for bare injunction, questions of law unrelated to the pleadings and issues, presumably because some evidence was led and some arguments were advanced on those aspects. The only averment in the plaint that plaintiffs were the owners of the suit property having purchased the same under sale deeds dated 9.12.1968, did not enable the court, much less a High Court in second appeal, to hold a roving enquiry into an oral gift and its validity or validation of ostensible title under section 41 of TP Act. No amount of evidence or arguments can be looked into or considered in the absence of pleadings and issues, is a proposition that is too well settled.

26. The High Court while reversing the decision of the first appellate court, examined various aspects relating to title and recorded findings relating to title. It held that gifting a property to a daughter or sister by way of ‘Pasupu Kumkumam”, could be done orally and did not require a registered instrument. Even though there was no independence evidence of oral gift except the assertion to Rukminibai (which was denied by Damodar Rao), the High Court, held that there was an oral gift in her favour. It also accepted the evidence of PW3 and PW5 and plaintiffs, that Damodar Rao negotiated for the sale of the plots representing that they belonged to his sister Rukminibai and that he attested the sale deeds as a witness and identified the Rukminibai as the executant before the Sub-Registrar and therefore, section 41 of TP Act came to the aid of plaintiffs and Damodar Rao was estopped from denying the title of his sister. The High Court in a second appeal arising from a suit for an injunction, could not have recorded such findings, in the absence of pleadings and issue regarding title.

27. We are therefore of the view that the High Court exceeded its jurisdiction under section 100 CPC, firstly in re-examining questions of fact, secondly by going into the questions which were not pleaded and which were not the subject matter of any issue, thirdly by formulating questions of law which did not arise in the second appeal, and lastly, by interfering with the well reasoned judgment of the first appellate court which held that the plaintiffs ought to have filed a suit for declaration.

28. We are conscious of the fact that the suit was filed in the year 1978 and driving the plaintiffs to a fresh round of litigation after three decades would cause hardship to them. But the scope of civil cases are circumscribed by the limitations placed by the rules of pleadings, nature of relief claimed and the court fee paid. The predicament of plaintiffs, was brought upon themselves, by failing to convert the suit to one for declaration even when the written statement was filed, and by not seeking amendment of issues to include an issue on the question of title. In the absence of a prayer of declaration of title and an issue regarding title, let alone the pleadings required for a declaration of title, the parties cannot be said to have an opportunity to have a full-fledged adjudication regarding title.

29. We, therefore, allow this appeal, set aside the judgment of the High Court and dismiss the suit. Nothing stated herein or by the courts below shall be construed as expression of any opinion regarding title, in any future suit for declaration and consequential reliefs that may be filed by the Appellants, in accordance with law. Parties to bear their respective costs.

 

see it: sources;

http://www.indiankanoon.org/doc/540361/

 

 

Harchand Singh Gujjar Singh vs Dalip Singh Pritam Singh on 5 January, 1965
Equivalent citations: AIR 1965 P H 468
Bench: A Grover

ORDER

(1) This is a petition for revision against an order of the trial Court holding that the suit which has been filed by the petitioner was one for declaration, and injunction has been claimed as a consequential relief and, therefore, ad valoerm Court-fee was payable apparently under S. 7(iv)(c) of the Court-fees Act. It was held that the plaint was not adequately valued for purposes of court-fee and jurisdiction.

(2) The plaintiff had instituted a suit for injunction alleging that he was a co-share in the truck to the extent of 1/2 which was in possession of the defendant and that the defendant be restrained from disposing it of. The defendant foiled a written statement denying the claim of the plaintiff and averring that the plaintiff had no interest as an owner in the truck. The Court below was of the opinion that where the property was not in possession of the plaintiff where the defendant also challenged his title, it could not be regarded as a suit for injunction alone. The view of the trial Court does not appear to be sustainable. In the first instance it is well settled that it is only the valuation given by the plaintiff that has to be considered for purposes of deciding the question of the valuation of the suit for purposes of court-fee and jurisdiction. The suit which the plaintiff has filed, is essentially for injunction and while claiming that relief he has asserted that he had 1/2 share in the truck in question. That does not mean that there is any legal necessity for the plaintiff to get a declaration of his right before he can get an injunction.

The correct test which has been laid down in decided cases is that where there is any legal necessity for the plaintiff to get a declaration of his right before he can get an injunction to protect it the suit will fall under S. 7(iv)(c) even though the plaintiff sought declaration by means of averments in the body of plaint and not prayed for declaration specifically at the end of the plaint. When there is some legal obstacle which has to be removed before a consequential relief can be granted, it is incumbent upon the plaintiff to pray for a declaration which will have the effect of removing that obstacle. If the plaintiff merely avers a title which can be established without the cancellation of a document or the nullification of any adverse title and only the reliefs are claimed which will naturally flow from the establishment of the title which he avers, it is not necessary for the plaintiff to pray expressly for a declaration of that title and the suit would fall under S. 7(iv)(d) and not under S. 7(iv)(c) and the court-fee would be payable in such cases under S. 7(iv)(d) vide Venkata Ranga Rao v. Sita Ramchandra Rao, AIR 1941 Mad 91.

In Veerappa V. Arunachalam, AIR 1936 Mad 200 it was held that the fact that the question of title also may have to be incidentally gone into in deciding whether an injunction can be given or not is not any justification for holding that the suit is for a declaration of title and for injunction. In that case there can be no objection to the maintainability of a suit for only an injunction. The decision of a Bench consisting of Derbyshire C. J. and B. K. Mukherjea J. (as he then was) in Binode Behari v. K. C. Biswas & Co., AIR 1940 Cal 552 appears to have been based on the same principles. A Full Bench of the Mysore High Court in H. R. Patel v. Venkatalakshamma, (S) AIR 1955 Mys 65 (FB) expressed a similar view making it quite clear that where the relief sought by the plaintiff was for an injunction then it could not be regarded to be the consequential relief unless it could not be granted except on declaration of the right of the plaintiff and not merely on proof of that right.

It was observed that the plaintiff in a suit for recovery of possession of land, if entitled to possession on proof of title was bound to pay court-fee on the basis that it was a suit for possession only though as a matter of fact there was prayer in the plaint for a declaration of his title also. The Court has to be guided by the substance of the case of the plaintiff asset out in the plaint and treat it as if he has not prayed for the superfluous and unnecessary prayer for declaration.

(3) The view expressed in the above cases seems to be, with respect, correct and no authority to the contrary has been cited. The learned counsel for the respondent has relied on the amendment of the proviso inserted by Punjab Act. No. XXXI of 1953 to S. 7(iv)(c).That proviso says–

“Provided further that in suits coming under sub-clause (c), in cases where the relief sought is with reference to any property such valuation shall not be less than the value of the property calculated in the manner provided for by clause (v) of this section”.

For applying the proviso it has first to be decided whether a suit falls under sub-clause (c) of S. 7(iv). If it falls under sub-clause (d) of S. 7(iv) then the question of applying the proviso cannot possibly arise. In the present case the suit clearly falls under sub. cl (d) of S. 7(iv) and it is not possible to agree with the view taken by the trial Court. The other point which has been mentioned by the learned counsel for the respondent is that the property involved in the present suit is movable and is admittedly out of possession of the plaintiff. That, however, will not make any difference because no such distinction has been recognised either by the statute or authorities between movable and immovable properties.

(4) For the reasons given above this petition is allowed and the order of the Court below is set aside. It is directed to proceed with the disposal of the suit in accordance with law, The parties shall appear before the trial Court on 28th January, 1965.

(5) Petition allowed.

IN THE HIGH COURT OF DELHI: NEW DELHI

SUBJECT : SUIT FOR DECLARATION,AND PERMANENT INJUNCTION

Judgment pronounced on: 14.10.2011

IA No.10686/2011 in CS (OS) No.1656/2011

M/S RICHA INDUSTRIES LTD & ORS ….. Plaintiffs

Through: Mr. Sandeep Sethi, Sr. Adv. with

Mr. Tanmay Mehta, Adv.

Versus

ICICI BANK LIMITED & ANR ….. Defendants

Through: Mr. S. Ganesh, Sr. Adv. with

Mr. Bharat Sangal, Mr. Sachin,

Ms. Vernika Tomar & Ms. Srijana

Lamba, Advs.

Coram:

HON’BLE MR. JUSTICE MANMOHAN SINGH

MANMOHAN SINGH, J.

1. The plaintiffs (hereinafter referred to as plaintiff) have filed the suit for declaration,

permanent injunction and damages against the defendants (hereinafter referred to as defendant).

Along with the suit, an application under Order XXXIX, Rules 1 and 2 CPC has been filed

wherein the following prayers are sought by the plaintiff:

“(a) Pass an ex parte ad interim order restraining Defendant No.1 from enforcing any rights

arising out of the derivatives trades executed on 27.09.2007 and 10.10.2007; (b) Pass an ex parte ad interim order restraining the defendant No.1 from declaring the

plaintiff as a willful defaulter and from proceeding further with any measures to declare the

Plaintiff as a willful defaulter;

(c) Pass an ex parte ad showing the status of the Plaintiff/Plaintiff’s account interim

order restraining Defendant No.2 from classifying and as ‘Sub Standard’ and from showing

the status of the Plaintiff/Plaintiff’s account as ‘Sub Standard’ in its records or on its website or

in any manner whatsoever;

(d) Pass an ex parte ad interim order restraining the Defendant No.1 from publishing or

communicating in any manner whatsoever, any material defamatory to the reputation, goodwill

and creditworthiness of the Plaintiff;

(e) Pass an ex parte ad interim order restraining Defendant No.1 from enforcing the

personal guarantees of Plaintiff Nos. 2 and 3;

(f) Confirm the orders passed in terms of (a) to (d) above;

(g) Pass any other order which this Hon’ble Court may deem fit in the interests of justice,

equity and good conscience.”

2. The relevant facts are that the Plaintiff Nos.2 and 3 are promoters shareholders and directors

of plaintiff No.1. Defendant No.1 is a scheduled bank within the meaning of the provisions of

the Reserved Bank of India Act, 1934. Defendant No.2 is a company incorporated under the

Companies Act, 1956 which is engaged in the business of collecting, collating and

disseminating credit information pertaining to both commercial and consumer borrowers to its

members.

3. It is stated in the plaint that on 24.08.2007, defendant No.1, by way of a Credit Arrangement

Letter, inter alia sanctioned a cash credit facility with a limit of Rs.10 crores and a derivatives

facility with a limit of Rs.11.7 crores in favour of the plaintiff. It is contended that the validity

period of the ‘limits’, for both the cash credit and derivatives facility was one year. 4. It is mentioned in the plaint that the first, account No.008351000019 was opened in respect

of the cash credit leg of the transaction. The security offered for the cash credit limit including

a charge on assets.

5. It is submitted that in respect of the derivatives transaction, another account namely

008305006312 was opened. There was no charge on the assets in so far as the derivatives

limits were concerned. The periodic interest payouts under the derivatives leg of the

transaction were required to be credited to account No.008305006312 as it was specifically

provided for in the derivatives trade term sheets/contracts for trades dated 27.09.207 and

10.10.2007.

6. Therefore, as per the plaintiff the accounts were distinct and separate from each other and not

interlinked in any manner.

7. These accounts were opened at the Faridabad branch of ICICI Bank i.e. ICICI Bank Ltd.,

District Centre, Sector-16, Faridabad, Haryana.

8. According to the plaintiff, defendant No.1 took the signatures of the representatives of the

plaintiff on a large number of blank proforma printed documents and signatures on several of

these documents were taken after the actual trades had already been executed. The blanks in

these documents were subsequently filled in by the officials of the defendant No.1 in their own

handwriting.

9. Admittedly, an ISDA Agreement was signed between the plaintiff and defendant No.1 on

11.9.2007 which was to govern any trades in derivatives as per the agreement entered into the

plaintiff and the defendant No.1. After the execution of the ISDA Agreement, there were two

derivative trade transactions executed on 27.09.2007 and 10.10.2007.

First Transaction

10. The Trade dated 27.09.2007 was identified with the number FC 179984 OP 179986/88/90.

The details of the trade as follow:

a. The spot reference rates at the time of the trade were stated as follows : i. USD/INR : 39.77 i.e. 39.77 INR buys 1 USD

ii. USD/JPY : 115.66 i.e. 115.66 JPY buys 1 USD

11. The plaintiff submits that the transaction was a principal only swap. Upon maturity of the

transaction, the Querist was to receive INR 238.62 million and pay JPY 693.96 million. The

transaction was however not only INR vis-à-vis JPY, but rather followed the pattern of INRJPY, the same has been as per their own version explained by the plaintiff in para 13 of the

plaint which reads as under :

(i) At the time of execution of the trade, it was decided that the notional equivalent of INR

238.62 million and JPY 693.96 million, was USD 6 million. In other words, to satisfy its

payout liability, the Querist would have to purchase 6 million USD on the maturity date, and

then depending how many JPY the said 6 million USD could purchase, the liability of the

plaintiff would be determined. If the USD-JPY exchange rate was such that USD 6 million

could purchase more than JPY 693.96 million, there would be no loss. But if the JPY

appreciated against the USD such that 6 million USD could purchase less than JPY 693.96

million.

(ii) The plaintiff was protected against INR/USD fluctuations but as far as USD-JPY

fluctuations was concerned the protection was only to a limited extent. In other words,

irrespective of the level of appreciation of the USD against the INR, the plaintiff was assured

that at maturity, it had the option to buy USD 6 million at 40.77 if USD/INR traded above

40.77.

(iii) However as far as USD/JPY was concerned, the plaintiff had the right to sell USD 6

million at 115.66 only so long as the USD/JPY did not trade at or below 98 between August 16,

2010 and September 15, 2010. The protection knocked out if the JPY appreciated against the

USD such as the reference rate for USD/JPY went below 98 i.e. if JPY appreciated against

USD (i.e. the same number of USD can purchase lesser JPY) to below 98, the Querist would

have to make up the deficit by making additional payouts depending on the actual appreciated

exchange rate as opposed to the rate of 115.66. This is because under the agreement, the swap

was INR 238 million-USD 6 million – JPY 693 million and it was the obligation of the Querist

to satisfy the notional threshold of JPY 693 million at maturity.

(iv) The transaction was a purely notional one i.e. only the difference based on exchanged

rates of the currencies on the date of maturity would be payable. There is no underlying real

asset. The term loans totalling approx 40.5 crores with Indian Overseas Bank, which were the

purported foundation/ underlying exposure of the swap agreement, were and continue to be payable to Indian Overseas Bank in INR currency. The said loan was never converted into JPY

or USD. The loan value therefore served only notional purposes.

(v) Significantly, any benefit under the transaction went to defendant No.1. If the JPY

depreciated against the USD i.e. if the USD/JPY went above 115.66(or in other words, the

same amount of USD could purchase more than JPY 115.66), the Querist would not obtain

any benefit and would still be obligated to sell USD 6 million at 115.66. The benefit would go

purely to defendant No.1.

(vi) Thus, there was no hedging of risk in the said transaction. The plaintiff was only

entitled to a semi annual interest payment of 1.6%. Any loss would have to be borne by it, and

any benefit would be of the defendant No.1. An analysis of the above would reflect that

protection in respect of USD/INR was clearly insufficient, since there was a large exposure

to risk in respect of USD/JPY. The contract itself stated that if the JPY appreciated beyond 98,

the payout could increase by about 3.7 crores and this figure would keep on increasing

relative to the appreciation of JPY against USD below 98. On the other hand, any benefit of

appreciation would be available only to ICICI Bank.

Second Transaction

12. The second trade dated 10.10.2007 was on exactly the same terms and conditions except

that the sums involved were different. Even in the trade dated 10.10.2007, the transaction was

purely notional and there was no underlying real asset.

a. The spot reference rates at the time of the trade were stated as follows:

i. USD/INR : 39.31 i.e. 39.31 INR buys 1 USD

ii. USD/JPY : 117.34 i.e. 117.34 JPY buys 1 USD

iii. JPY/INR : 0.3350

b. The notional values were INR 157.24 million/USD 4 million/JPY 469.36 million.

c. The underlying asset, for purely notional value, were purportedly term loans with

Indian Overseas Bank to the tune of approx. 40.5 crores.

13. On 10th September, 2008 with reference to the cash credit facilities, the plaintiff asked the

defendant No.1 for a closure of account No.008351000019, in reply to said letter the plaintiff received communication dated 02.12.2008 demanding additional margin in respect of the

derivative contracts. The plaintiff had requested for enhancement of the derivatives limits to

Rs. 15.7 crores and also agreed for a lien be marked in the existing cash credit account to the

limited extent of Rs.13 lac. Admittedly, the letters demanding additional margin continued by

the defendant No.1.

14. In March and April 2009, the plaintiff wrote to the defendant No.1 asking for :

a. Closure of account No.008351000019, transfer of the balance in account

No.008351000019 to current account No.008305006312;

b. Issuance of a no dues certificate in respect of account No.008351000019 and issuance

of a satisfaction of charge (as under the credit arrangement dated 24.08.2007, there was charge

created on the assets in so far as the cash credit facility was concerned.)

15. By a letter dated 13.03.2009, defendant No.1 sent the swap settlement advice to the plaintiff

in respect of the trades executed on 27.09.2007 and 10.10.2007.

16. The defendant No.1 by e-mail dated 24.4.2009 responded to the demands of the plaintiff for

closure of account No.008351000019 and issuance of No Dues Certificate and the plaintiff was

also informed that since the derivative transactions had negative mark to market valuation,

defendant No.1 had withheld the amounts in the account (i.e. Cash Credit Account no.

008351000019) to the extent of outstanding Mark to Market exposure as on 24.4.2009 and

during first week of May, 2009, the defendant No.1 also blocked account No.008351000019.

17. The plaintiff stated that the payouts due under the derivatives contracts have also not been

credited to account no.008305006312 which account was meant specifically for this purpose

except the first two payouts were credited to the correct account i.e. account No. 008305006312

and thereafter, the payouts have been credited to the wrong account i.e. Cash Credit Account

No.008351000019. The submission of the plaintiff is that the defendant No.1 was not entitled

to retain a lien over the cash credit account for derivatives related transactions. Derivatives

transactions do not fall within the ordinary course of banking business and hence no general

lien of bankers in exercisable in respect of derivative transactions. 18. The plaintiff alleged that as the demands for deposit of margins were illegal and contrary

to the contractual terms and conditions on 07.08.2009, the plaintiff lodged a complaint with the

Banking ombudsman regarding the conduct of the defendant No.1.

19. By way of letters dated 21st and 23rd September, 2010, defendant No.1 informed the

plaintiff that the derivative trades executed on 27.09.2007 and 10.10.2007 had matured with

losses of 10,53,68,562.52 and 7,40,06,926.07 respectively. The letters also stated that there

was an overdue balance in account no.008351000019 to the tune of Rs.16,96,98,997.04. This

figure regarding overdue balance was arrived at by deducting the positive balance in account

No.008351000019 i.e. 96,76,492.54 from the sum total of 10,53,68,562.52 and 7,40,06,926.07.

20. By letters dated March 1st 2011 and March 25th 2011, the defendant informed the plaintiff

that as on 28.02.2011, a sum of Rs.18.33 crores was due from the latter inclusive of interest.

The plaintiff was called upon to show cause as to why it should not be classified as a willful

defaulter. The plaintiff was also given an option of approaching the Grievance Redressal

Committee of the defendant No.1. This notice was given in terms of the Master Circular of the

RBI dated 01.07.2010.

21. The letters dated 01.03.2011 and 25.03.2011 were replied by the plaintiff by way of letter

dated 09.04.2011. It was submitted in the said letter that the Master Circular, pursuance of

which the show cause notice was issued, was inapplicable to Derivative Transactions and the

plaintiff informed the bank that the plaintiff was not a willful defaulter and reiterated that the

Derivative Transaction was an unsecured one.

22. On 13.04.2010, the Banking Ombudsman gave its decision stating that it was not the

appropriate forum for redressal of the grievance. The representatives of the plaintiff appeared

before the Grievance Redressal Committee of the defendant No.1 and explained their position

as to why they cannot be classified as willful defaulter. After the hearing, the decision in this

regard was pending.

23. The plaintiff assails both the transactions dated 27.9.2007 and dated 10.10.2007 before this

court by way of present suit seeking a declaration that the said transactions are null and void being unenforceable in law and injunction thereof. The challenge is laid on the transactions on

the following counts:

a. The only permitted purposes for which derivative transactions can be entered into are to

hedge exchange rate/interest rate exposure or to transform long term INR liability into a foreign

currency liability (RBI Circular dated 28.12.2010, Master Circular dated 02.07.2010 and

Comprehensive Guidelines on Derivatives dated 20.04.2007). The plaintiff’s case does not fall

in either of the permissible criterion which enables the bank to conduct such derivative

transactions. This has been explained by the plaintiff in the following terms:

* It is argued that the above said trades were not intended to hedge any foreign currency

exposure. The plaintiff has no foreign currency external commercial borrowings. Its foreign

exchange requirements are also minimal. In any event, this particular transaction was not

intended for any of the said purposes.

* The notional basis of the transaction was an underlying term loan with Indian Overseas

Bank. That loan was and continues to be payable in INR. There is no transformation of the

said loan into a foreign currency loan. The loan was only for purely notional purposes.

* It is argued that the transaction does not involve any hedging i.e. reduction or extinguishing

of risk. In fact, it only increases the risk for the plaintiff since the entire benefit under the

transaction would be that of the defendant and the loss if any would be of the plaintiff. The

only entitlement of the plaintiff was a periodic interest payout, in terms of the RBI Circular

dated 02.07.2007, a derivative transaction should not increase in risk in any manner.

24. It is submitted by the plaintiff that the transactions do not fall within either of the criteria for

which foreign currency swaps are permissible under RBI Regulations. They also do not

provide hedging against any risk. Rather they increase the risk for the plaintiff. They are

therefore not permissible in law and therefore not enforceable in law under Section 23 of the

Contract Act, 1872 being contracts which are beyond the law and this court can draw inference

by looking into the illegality in the said contracts and their purpose.

25. The plaintiff states that the agreement or the transactions are not valid that the defendant

was never authorized to do the derivative transactions on behalf of the plaintiff. It is submitted

on behalf of the plaintiff that the defendant has got some template contracts signed from the

plaintiff whereof entered into the transactions on its behalf without proper information and

guidance. It is argued that there was no consensus ad idem to enter into any such contract of authorizing the defendant to enter into derivative transaction and the same is vitiated by the

consensus ad idem and consent of the plaintiff. The said consent must be taken from the

plaintiff by way of informed consent and not by just getting the documents signed without

informing the purpose for which they are taken from the plaintiff.

26. The plaintiff is also aggrieved by the fact that the defendant is seeking to declare the

plaintiff as willful defaulter. The plaintiff challenges the defendant’s letter dated 28.02.2011,

whereby show cause was issued as to why it should not declare the plaintiff as willful defaulter.

The plaintiff states that the same cannot be done by the defendant on account of the following:

a) The plaintiff cannot be declared as willful defaulter in the event of the defendant’s or

bank’s legal debt, once the defendant’s transaction are challenged and shown by the plaintiff as

invalid in law, the plaintiff cannot be declared prematurely as willful defaulter till the time the

legality of the transactions done by the bank/ defendant is decided.

b) The plaintiff also cannot be declared as willful defaulter as the defendant has not stated

that the plaintiff has funds but it is not paying the debt which is one of the criteria for willful

defaulter. But in fact the same is not the truth as the plaintiff’s liabilities exceed its assets.

For all these reasons, the plaintiff states that it cannot be declared as willful defaulter.

27. Learned counsel for the plaintiff submits that the said transactions are illegal and this would

be evident from the fact that Reserve Bank of India has recently imposed heavy penalties on

several banks including the defendant No.1 bank for contravention of various instructions

issued by the Reserve Bank of India in respect of derivatives.

28. The plaintiff submits that the defendant has not properly explained the concept of margin.

Under the original credit sanction letter dated 24.08.2007, the derivatives limit was 11.7 crores.

This was the margin i.e. as long as the losses of the plaintiff remained within 11.7 crores, there

would be no need to deposit any additional sums of money. However, if the loss payout

exceeded 11.7 crores, then the defendant would be entitled to demand that the plaintiff brings in

additional sums of money. This additional sum of money is essentially a collateral security.

Thus, the increase in margin is not something good for the plaintiff as has been sought to

be projected by the defendant. When the plaintiff sought for increase in margin limits, it was

because the losses had increased beyond 11.7 crores and it did not have enough funds at that

time to further infuse by way of collateral. Hence if the derivatives limit was increased to 15.6 crores, it would mean that losses up to 15.6 crores could be reached without the plaintiff having

to deposit additional money by way of collateral. Thus, the asking for increase in margin, was

not something positive, but rather something negative from the business point of view.

29. The plaintiff has referred the expert opinion of Sh. A.V. Rajwade who is a renowned

personality and expert who has taken the view that the transactions in question are illegal as

being contrary to RBI Circulars.

30. It is also stated by the plaintiff that defendant No.1 has engaged in conduct which is

defamatory towards the plaintiff and which lowers its reputation, goodwill and credit

worthiness in the eyes of the general public and specially in the eyes of its lenders/banks and

financial institutions, and its business partners and the defendant should be prohibited from

doing so. This has been explained by the plaintiff by putting reliance on the letter dated

16.05.2011, which the defendant No.1 wrote to the Bankers of the plaintiff stating that the

plaintiff had incurred losses in derivative transactions, that legitimate dues of defendant No.1

had remained unpaid for more than 6 months and that the account of the plaintiff had been

classified as a Non performing Asset. The letter also stated that the defendant No.1 had

initiated proceedings before the Debt Recovery Tribunal, Mumbai and also had initiated

proceedings for declaring the plaintiff as a willful defaulter.

31. The defendant has filed the reply in which it has resisted the injunction application by

raising the following submissions:

a) It is stated by the defendant that the suit filed by the plaintiff is barred by the provisions

of Sections 17 & 18 of the Recovery of Debts Due to Banks and Financial Institutions Act,

1993. The plaintiff has filed the present suit with its malafide attempt to avoid payment of the

amount of ` 195.8 million as on 30.06.2011 under the terms of the I.S.D.A. Master Agreement

which amount is debt in terms of Section 2(g) of the Recovery of Debts due to Banks and

Financial Institutions Act, 1993;

b) The plaintiff is guilty of suppression of facts in order to procure the interim relief from

this Court and have not come before this Court with clean hands, as the relief sought by the

plaintiff in the present application is on the basis of the same grounds by challenging the said

two transactions which have been taken by the plaintiff before Debt Recovery Tribunal-III,

Mumbai in the case filed by defendant No.1 by filing of reply; c) That derivative transactions are specifically permitted and governed by Indian

legislation, viz. (i) the Securities Control (Regulations) Act, 1956; (ii) the Reserve Bank of

India Act, 1934 and the guidelines framed and circulars issued there under; & (iii) the Foreign

Exchange Management Act and the regulations framed thereunder. Such legislations being

later and specific, therefore, the same would not result in derivative contracts being treated as

wagers/illegal and/or void. The Courts across the country have upheld legality of the derivative

transactions and have come to the conclusion that the derivative transactions are not in the

nature of wagering contracts and neither void under Section 23 or Section 30 of the Contract

Act.

d) In compliance with the said mandatory RBI Circular, the defendant No.1 has already

sent CIBIL a list of all willful defaulters as on 29.07.2011 which included the plaintiff No.1

who is already declared as willful defaulter during the pendency of the present suit. After the

said compliance, all banks are already aware that the plaintiff is a willful defaulter within the

meaning of the RBI Circular. The contention of Mr S. Ganesh, the learned Senior Counsel, is

that in fact it was in compliance of the said Circular, otherwise it was not done on its own and

the said list has been put by CIBIL on the internet and in case there is further requirement under

the RBI Circular, the bank has no intention to issue any further such letters against the plaintiff.

e) It is also the case of the defendant that the plaintiff’s stand qua the informed consent is

bad as the plaintiff was all the time aware of the nature of transactions entered by it. It is stated

that for the purposes of entering into such derivative transactions, the plaintiff company has

passed the resolution to the same effect, furthermore the plaintiff has made several declarations

before entering into such transaction which have been relied upon by the defendant to urge that

the same shows the complete understanding of the plaintiff about the transaction and the ground

taken about lack of consensus ad idem is baseless.

f) The defendant has also informed that the plaintiff cannot claim that it has been deceived

and the argument of the plaintiff that the defendant ought to have made an investigation is no

obligation of the defendant bank.

g) The defendant bank has also informed the court that the plaintiff contention that the

defendant bank cannot enter into the derivative transactions on behalf of the plaintiff as the

plaintiff’s liability is confined to the loan which has been taken in Indian rupee and therefore

question of entering into derivative transaction does not arise is completely baseless as the

circular of RBI dated 1.7.2010 expressly provides about the same.  The defendant accordingly prays for the dismissal of the injunction application in view

of false nature of the pleas taken by the plaintiff to maintain the present suit.

32. The matter comes up for hearing before this court when Mr. Sandeep Sethi, learned Senior

Counsel appearing on behalf of the plaintiff, makes his submissions which are outlined as

under:

* Firstly, Mr. Sethi, learned senior counsel submits that the present suit challenges the legality

of the transactions dated 27.9.2007 and 10.10.2007 which has to be only looked into by this

court and not by the debt recovery tribunal. It is argued that it is claim of the plaintiff that the

said transactions and trades done in view thereof are violative of section 23 of the Indian

contract Act and thus the bar of jurisdiction of the court under section 17 and 18 of DRT Act

will not operate in the present as the same does not come within the domain of the debt

recovery tribunal and it cannot adjudicate or comment upon the legality of the transaction.

33. To support his submission, learned senior counsel for the plaintiff has placed reliance upon

the judgment passed by the Apex Court in the case of Nahar Industrial Enterprises Ltd versus

Hong Kong & Shanghai Banking Corporation; (2009) 8 SCC 646 wherein the apex court

observes as under:

“85. If the Tribunal was to be treated to be a civil court, the debtor or even a third party must

have an independent right to approach it without having to wait for the bank or financial

institution to approach it first. The continuance of its counterclaim is entirely dependent on the

continuance of its counterclaim is entirely dependent on the continuance of the applications

filed by the bank. Before it no declaratory relief can be sought for by the debtor…..

97. A debtor under the common law of contract as also in terms of the loan agreement may

have an independent right. No forum has been created for endorsement of that right.

Jurisdiction of a civil court as noticed hereinbefore is barred only in respect of the matters

which strictly come within the purview of Section 17 thereof and not beyond the same. The

civil court, therefore, will continue to have jurisdiction.

108. Although some arguments have been advanced before us whether having regard to the

provisions of Sections 17 and 18 of the Act the civil court jurisdiction is completely ousted, we

are of the view that the jurisdiction of the civil court would be ousted only in respect of the matters contained in Section 18 which has a direct co-relation with Section 17 thereof, that is to

say that the matter must relate to a debt payable to a bank or a financial institution. The

application before the Tribunal would lie only at the instance of the bank or the financial

institution for the recovery of its debt. It must further be noted in this respect that had the

jurisdiction of the civil courts been barred in respect of counterclaim also, the statute would

have said so and Sections 17 and 18 would have been amended to introduce the provision of

counterclaim.”

34. Therefore, as per learned senior counsel for the plaintiff, there is no ouster of jurisdiction

and rather this court is competent to adjudicate the present dispute.

* Secondly, Mr. Sethi, learned senior counsel for the plaintiff proceeded to explain as to how

the trades dated 29.7.2007 and 10.10.2007 are illegal. Mr. Sethi argued that there are

permissible criterion for entering into the derivative transactions which are:

a) To hedge any foreign currency exposure – That is to restrict the risk of foreign currency

exposure. In the present case, as per Mr. Sethi, the plaintiff has no foreign currency external

borrowings and therefore the said transaction could not have been entered into by the defendant

bank as it is beyond the said purpose.

b) To transform the long term INR liability into a foreign currency- The only basis of the

transaction was the loan with Indian Overseas Bank and the said loan was payable in Indian

Rupees. Thus, there was no occasion for contemplating any foreign currency exposure or for

that matter hedging of the foreign currency exposure.

c) Further, it has been explained by Mr. Sethi, learned senior counsel that the transaction

nowheres reduces the risk of the plaintiff and rather the said transaction increases the risk of the

plaintiff. This is due to the reason that the profit entitlement out the same accrues to the

defendant and the loss is suffered by the plaintiff if any.

35. As per Mr. Sethi, learned senior counsel for the plaintiff, since the transactions are outside

the purview of the permissible criterion for entering such derivative transactions, the said

transactions done by the defendant become illegal and thereby the transactions are violative of

the provisions under section 23 of Indian Contract Act and the same are unforceable in law.

* Thirdly, Mr. Sethi has argued that this court should also consider the expert opinion of Mr.

A.V. Rajwade who is an expert and is a professor of IIM Ahmedabad who has also opined that

the transactions entered into by the defendant are illegal and contrary to RBI Circulars. * Fourthly, Mr. Sethi, learned senior counsel for the plaintiff has argued that the defendant

should be prevented by the orders from this court so as to declare the plaintiff as willful

defaulter. Learned Senior Counsel for the plaintiff has stated that the plaintiff cannot be

categorized as willful defaulter due to following reasons:

a) The basis on which the defendant bank can declare any person as a willful defaulter are :

(a) The unit has defaulted in meeting its payment/repayment obligations to the lender even

when it has the capacity to honour the said obligations.

(b) The unit has defaulted in meeting its payment/repayment obligations to the lender and has

not utilised the finance from the lender for the specific purposes for which finance was availed

of but has diverted the funds for other purposes.

(c) The unit has defaulted in meeting its payment/repayment obligations to the lender and has

siphoned off the funds so that the funds have not been utilized for the specific purpose for

which finance was availed of, nor are the funds available with the unit in the form of other

assets.

(d) The unit has defaulted in meeting its payment/repayment obligations to the lender and has

also disposed off or removed the movable fixed assets or immovable property given by him or

it for the purpose of securing a term loan without the knowledge of the bank/lender.”

Admittedly, the plaintiff is falling only within the first criteria. The said provision is

also not applicable as the plaintiff is not amongst the person who has funds and it is not paying

the debt and rather the plaintiff’s liabilities exceed its assets, which has been admitted by the

defendant as per the plaintiff. Therefore, the plaintiff does not fall within the parameters of the

prescribed provisions, which enables the banks to categorize the plaintiff as willful defaulter.

Thus, this Court can prevent the defendant from doing so and if already has been done from

further doing so as the same tarnishes the reputation of the plaintiff in the trade.

b) The defendant can otherwise also cannot declare the plaintiff as willful defaulter as the debt

or claim must exist valid in law. In the present case, it is the case of the plaintiff that the said

transaction is illegal and once that the said transaction is found to be illegal, the defendant has

no business to declare the plaintiff as willful defaulter.  Therefore, as per the learned senior counsel for the plaintiff, this court should issue

preventive orders calling upon the defendant to stop writing to other banks that the plaintiff is

the willful defaulter.

36. Thus, as per Mr. Sethi, the plaintiff cannot be estopped from challenging the transactions if

they are otherwise illegal solely on the ground that the plaintiff has participated in the

transaction in any manner. Mr. Sethi has also argued that there is no informed consent at the

time of entering into the contracts with the plaintiff by the defendant. The defendant has just

got some blank contract signed from the plaintiff without explaining the meaning and risk

element involved in it. Thus, there is no consensus ad idem and the contract with the defendant

to enable him to enter into the derivative transaction is also vitiated by the lack of consent.

37. Learned senior counsel by making the abovestated submissions pressed for the interim

relief. Learned senior counsel although while arguing the matter orally stated that he may not

press for prayer (a) in the interim application, although in written submissions, learned counsel

for the plaintiff has elaborated the meaning of not pressing the prayer (a) by dissecting into two

parts and went ahead to state that the plaintiff is interested and is pressing for the prayer (a) to

the extent that this court should decide the validity of the transaction in law.

38. Per contra, Learned senior counsel Mr. S. Ganesh appearing on behalf of the defendant has

made his submissions which can be outlined in the following manner:

* Firstly, Mr. Ganesh, learned senior counsel for the plaintiff has submitted that the subject

matter which is legality of the transactions as contended by the plaintiff is the matter which is

pending before DRT and it is the matter which DRT shall decide. As per learned senior counsel

for the defendant, the same question cannot be adjudicated upon by this court as well as DRT

simultaneously. Therefore, the present suit is barred within the provisions of section 17 and 18

of the DRT Act.

* Secondly, Mr. Ganesh, learned senior counsel for the defendant submits that as regards the

plaintiff’s claim seeking restraint orders against the defendant for the purposes of declaring it as

willful defaulter is concerned, the defendant is under obligation by the RBI circular dated July

1, 2010 to intimate to Credit Information Bureau Ltd the quaterly list of suits filed against the

willful defaulters. The said circular is mandatory and has the force of the law. Therefore, the

issuance of restrain order against the object of the circular which is that all the banks should be aware about the willful defaulters would be rather preventing the banks from knowing about the

status of the willful defaulters.

39. Mr. Ganesh has placed reliance upon the circulars passed by RBI from time to time to

banks and financial institutions containing instructions on matters relating to willful defaulters.

The instructions were issued in the circular dated 1st July 2009. It has been argued that one of

the main purposes of issuance of the circular in relation to willful defaulters was to intimate

the banks and financial institutions in order to ensure that further bank finance is not made

available to them. The introductory part of the circular contains that information were received

from the Central Vigilance Commission for the collection of information on willful defaults of

Rs.25 lac and above by the Reserve Bank and for dissemination to reporting banks and to

financial institutions.

40. The master circular on willful defaulters issued on 1st July, 2009 was in this background.

The expression “willful default” has been defined in the circular as follows :

“A “willful default” has been redefined in supersession of the earlier definition as under:

(a) The unit has defaulted in meeting its payment/repayment obligations to the lender even

when it has the capacity to honour the said obligations.

(b) The unit has defaulted in meeting its payment/repayment obligations to the lender and has

not utilised the finance from the lender for the specific purposes for which finance was availed

of but has diverted the funds for other purposes.

(c) The unit has defaulted in meeting its payment/repayment obligations to the lender and has

siphoned off the funds so that the funds have not been utilized for the specific purpose for

which finance was availed of, nor are the funds available with the unit in the form of other

assets.

(d) The unit has defaulted in meeting its payment/repayment obligations to the lender and has

also disposed off or removed the movable fixed assets or immovable property given by him or

it for the purpose of securing a term loan without the knowledge of the bank/lender.” 41. It is also argued by the learned senior counsel Mr. Ganesh that the information regarding

the plaintiff being the willful defaulter has already been provided to the CIBIL by a letter dated

29.7.2011 and therefore, the prayers in the plaintiff’s interim application are now meaningless.

42. Mr. Ganesh also argued that the question of the plaintiff’s status as a willful defaulter is a

resultant affect of the derivative transaction, the legality of which is under question before the

Debt Recovery Tribunal, accordingly, the plaintiff stands to get the same adjudicated

independently is not correct and nor this court should independently delve into such inquiry as

the same is question which is dependent upon the decision of the legality of the transaction

which has to be seen by the Debt Recovery Tribunal.

43. Mr. Ganesh, learned senior counsel for the defendant, has also made submissions in order to

support the legality of the derivative transaction though he has argued that the same has to be

looked into by the Debt Recovery Tribunal. The said submissions can be discussed in the

following terms:

a. The transaction between the plaintiff and defendant are covered by the Section 45 U of the

Reserve Bank of India Act which reads as under:

45U. Definitions. For the purposes of this Chapter,–.

(a) “derivative” means an instrument, to be settled at a future date, whose value is derived from

change in interest rate, foreign exchange rate, credit rating or credit index, price of securities

(also called “underlying”), or a combination of more than one of them and includes interest rate

swaps, forward rate agreements, foreign currency swaps, 1 Ins. by sec. 4 of the RBI

(Amendment) Act, 2006 (Act No. 26 of 2006) (w.e.f. 9.1.2007). foreign currency-rupee swaps,

foreign currency options, foreign currency-rupee options or such other instruments as may be

specified by the Bank from time to time;

(b) “money market instruments” include call or notice money, term money, repo, reverse repo,

certificate of deposit, commercial usance bill, commercial paper and such other debt instrument

of original or initial maturity up to one year as the Bank may specify from time to time; (c) “repo” means an instrument for borrowing funds by selling securities with an agreement to

repurchase the securities on a mutually agreed future date at an agreed price which includes

interest for the funds borrowed;

(d) “reverse repo” means an instrument for lending funds by purchasing securities with an

agreement to resell the securities on a mutually agreed future date at an agreed price which

includes interest for the funds lent;

(e) “securities” means securities of the Central Government or a State Government or such

securities of a local authority as may be specified in this behalf by the Central Government and,

for the purposes of “repo” or “reverse repo”, include corporate bonds and debentures.

Section 45 V also provides for non obstante clause which reads as under:

“45V. Transactions in derivatives. (1) Notwithstanding anything contained in the Securities

Contracts (Regulation) Act, 1956 (42 of 1956) or any other law for the time being in force,

transactions in such derivatives, as may be specified by the Bank from time to time, shall be

valid, if at least one of the parties to the transaction is the Bank, a scheduled bank, or such other

agency falling under the regulatory purview of the Bank under the Act, the Banking Regulation

Act, 1949 (10 of 1949), the Foreign Exchange Management Act, 1999 (42 of 1999), or any

other Act or instrument having the force of law, as may be specified by the Bank from time to

time.

(2) Transactions in such derivatives, as had been specified by the Bank from time to time, shall

be deemed always to have been valid, as if the provisions of sub-section (1) were in force at all

material times.”

A careful reading of the aforesaid provisions as per Mr. Ganesh makes it clear that the

derivative transactions entered into by the banks are permissible and there is no illegality in the

said transactions.

44. So far as the submission of the plaintiff on the purpose of the transaction is concerned, as

per learned senior counsel Mr. Ganesh, the same is also misconceived as the a person having

liability in the Indian Rupee can still enter into the derivative transaction. This is by virtue of clause 6(b) of the above mentioned circular of RBI dated 1.7.2010 that such transactions can be

entered into even when under laying basis is of Rupee liability or loan. The circular of 2008

also contains the similar clause 2(ii) which reads as under:

“(ii) A person resident in India, who has a foreign exchange or rupee liability, may enter into a

contract for foreign currency – Rupee Swap with an AD Category – Banks in India to hedge

long term exposure under the following terms and conditions:

a) No swap transactions involving upfront payment of the rupees or its equivalent in any form

shall be undertaken.

b) Swap transactions may be undertaken by AD category – banks as intermediaries by matching

the requirements of corporate counter parties.

c) While no limits are placed on the AD category – I Banks for undertaking swaps to facilitate

customer to hedge their foreign exchange exposures, limits have been put in place for swap

transactions facilitating customers to assume a foreign exchange liability, thereby resulting in

supply in the market. While matched transactions may be undertaken, a limit of USD 50

million is placed for net supply in the market on account of these swaps. Positions arising out of

cancellation of swaps by customers need not be reckoned within the cap.

d) With reference to the specified limited limits for swap transactions facilitating customers to

assume a foreign exchange liability, the limit will be reinstated on account of cancellation/

maturity of the swap and on amortization, up to the amounts amortized.

e) The above transactions, if cancelled, shall not be rebooked or reentered by whatever name

called.”

45. Therefore, as per Mr. Ganesh, there is no force in the contention of the plaintiff that the

derivative transactions entered into by the defendant are illegal or beyond the prescribed

purpose.

46. Mr. Ganesh also submitted that so far the consensus ad idem is concerned, it is argued that

the plaintiff was all the time aware of the transactions. This can be seen by closely having look at the events including the resolution passed by the plaintiff company specifically authorizing

the personnel to enter into such derivative transactions.

47. Further, the plaintiff continued to write to the defendant from time to time for credits of the

amounts in favour of the plaintiff. Thus, it cannot be argued by the plaintiff that it was not

aware of such transactions once the plaintiff itself has participated in the same.

For all these reasons, as per the learned senior counsel for the defendant, the

transactions entered by the defendant cannot be faulted with and suffers from no illegality.

48. The learned Senior Counsel for the defendant No.1, states that in view of the above said

position, the plaintiff possibly cannot say that it was deceived into entering into the said

transactions and the plaintiff did not understand the same. The said transactions are legal and

valid and since the requirements laid down by the RBI Circulars in respect of said transactions

were not were not fulfilled, therefore, the bank had rightly relied upon the said declaration

made by the plaintiff and now the plaintiff cannot take advantage of its own wrong by claiming

that the said transactions were null and valid. In support of his submissions, the learned Senior

Counsel for the defendant has referred to the judgment of the Madras High Court in the case of

Rajshree Sugars & Chemicals Ltd. v. AXIS Bank Ltd.; 2008 (8) MLJ 261. He therefore

submits that the plaintiff is not entitled to raise the issue of validity of the said transactions

before this Court.

49. The learned Senior Counsel on behalf of the defendant submits that under the guidelines of

RBI dated 19.09.2008, the defendant No.1 is bound to inform all banks which are dealing with

the plaintiff if the plaintiff’s operation of its account and its facilities with the defendant No.1

are below par and specifically it is declared to be non performing asset. Therefore, the letter

dated 16.05.2011 was issued by the bank to the other banks under the said Circulars.

50. In reply to the submissions made by Mr Ganesh, Mr Sandeep Sethi, the learned Senior

Counsel for the plaintiff, has argued that in case this Court finds that the transactions are illegal

and void, then no plea of estoppel or acquiescence can be entertained by this Court as it is

settled law that there is no estoppel against the statute. Even assuming that the transaction was

entered into with the consent of the plaintiff, the plaintiff cannot be precluded from raising a

plea of invalidity. Therefore, there cannot be a valid waiver or estoppel in the fact of a legislative prohibition, if same is against the public policy as the same would be violative of

Section 23 of the Contract Act. Mr Sethi has referred to the following judgments in support of

his submissions:

a. Waman Shriniwas Kini v. Ratilal Bhagwandas & Co.; AIR 1959 SC 689.

b. State of Punjab v. Amar Singh; (1974) 2 SCC 70.

c. Union Carbide Corporation v. Union of India;(1991) 4 SCC 584.

51. It is submitted by the plaintiff that in fact when even a compromise decree, passed on the

basis of the consent of the parties by a Court, can be set aside on the ground of violation of a

statutory provision. There is no reason why a contract cannot be so declared null and void,

even assuming but not conceding that the plaintiff had given its consent to the same.

52. In reply to Section 45V of the RBI Act, it is stated by the plaintiff that the said provision is

a non obstante provision only qua other statutes. Thus, it would save the invalidity of

transactions if the invalidity alleged is on account of violation of other statutes. However,

Section 45V does not permit violation of directives of RBI itself. In fact, the provision is based

on the assumption that the transactions are permitted by the RBI. Thus, since the plaintiff has

shown that the transactions are violative of RBI directives, protection of Section 45V is not

available.

53. The next submission of Mr Sethi is that the plaintiff does not fall within the category of

persons who can be declared willful defaulter in view of the admission made by the defendant

No.1 itself. It is contended by the plaintiff that as per the defendant No.1’s own admission, the

plaintiff does not fall within the category (b), (c) and (d) because the defendant’s own case is

that the plaintiff is only covered by category (a), i.e., the plaintiff has funds and it is not paying

the debt. However, in its Original Application before the DRT, the defendant No.1 bank has

itself admitted that the liability of the plaintiff exceeds its assets. Even this admission,

according to the plaintiff, is on the face of it negates the argument of the bank that the plaintiff

has funds and is yet not paying the debt. Therefore, on the basis of the admission made by the

defendant No.1, the plaintiff cannot be declared as willful defaulter. It is also stated by Mr

Sethi that the order of willful defaulter was passed by the bank after filing the present suit and it

appears that it is an afterthought. 54. In so far as allegation of the defendant No.1 that the plaintiff has concealed the fact is

concerned, the contention of the plaintiff is that it is a false plea as it is apparent from the facts

stated in paras 48 and 49 of the plaint. The plaintiff did not deny the existence of DRT

proceedings but rather denied the validity of the claims made before it. Therefore, the

defendant No.1 is not entitled to read out the para 48 of the plaint out of context.

55. In reply to the judgment Rajshree Sugars & Chemicals Ltd. (supra) referred to by the

defendant No.1, it is stated by the plaintiff that the said judgment is distinguishable as in para

10 of that judgment, it was mentioned that the company in that case had external commercial

borrowings. The plaintiff in the present case does not have any external commercial

borrowings and the said transactions are specifically meant to hedge against exchange rate

fluctuations on account of foreign exchange currency fluctuations.

56. Lastly, it is argued by the plaintiff that the balance of convenience is in favour of the

plaintiff and irreparable loss would be caused to the plaintiff in case the relief sought by the

plaintiff is not granted as the defendant No.1 has only monetary claims against the plaintiff

which can always be adjusted subject to final decision of the suit. It is also stated that in the

letter dated 29.07.2011 the plaintiff has only mentioned, which was handed over in Court, that

the plaintiff has been declared as willful defaulter as on 30.06.2011 although the plaintiff has

not been informed of this development and the said act of the defendant No.1 is highly

improper as the said information was given during the pendency of the suit. In view of the

above said reasons, it is argued by the plaintiff that the application be allowed and the operation

of the letter dated 29.07.2011 thereby declaring the plaintiff willful defaulter be stayed till the

disposal of the suit.

57. I have gone through the plaint and documents filed by the parties and have duly considered

the submissions made by the parties at the bar. I shall now be dealing with the submissions of

the parties point wise.

58. Firstly, the question was raised on the maintainability of the suit in view of the bar of

Section 17 of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It

would be wiser to go through the said section. Sections 17 and 18 of the said Act read as

under: “17. Jurisdiction, powers and authority of Tribunals.—(1) A Tribunal shall exercise, on and

from the appointed day, the jurisdiction, powers and authority to entertain and decide

applications from the banks and financial institutions for recovery of debts due to such banks

and financial institutions.

(2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction,

powers and authority to entertain appeals against any order made, or deemed to have been

made, by a Tribunal under this Act.

18. Bar of Jurisdiction.—On and from the appointed day, no court or other authority shall

have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme

Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution)

in relation to the matters specified in section 17.”

59. On bare reading of the provisions, it becomes amply clear that the tribunal is vested with

the jurisdiction to entertain, decide applications from the banks and financial institutions for

recovery of the debts due to such banks and financial institutions. Section 18 bars the

jurisdiction of all courts in relation to the matters specified in Section 17.

60. The conjoint reading of both Sections 17 and 18 would also reveal that the tribunal has been

given the limited jurisdiction to decide the applications from the banks or financial institutions

for recovery of debts due to such banks. Thus, the bar of the jurisdiction which has been

expressly provided under section 18 in relation to the matters specified in section 17 would

operate to the extent the exercise of jurisdiction which has been given to Debt Recovery

Tribunal and not beyond the same. Therefore, the other kinds of reliefs which may be sought by

party contesting the claims of the banks like declaratory reliefs, recoveries from the banks by

the debtors in common law (incases where the banks have not filed the applications before the

Debt Recovery Tribunal) are still falling within the domain of the civil court as they are not

covered expressly within the ambit of section 17 and therefore the DRT may not be able to

grant such reliefs.

The Hon’ble Supreme Court of India also had an occasion to deal with the said issue in relation

to the derivative transaction wherein the invalidity of the transaction has been sought by the

parties contesting the claims of the banks and the banks sought the transfer of the cases to DRT (Debt Recovery Tribunals). The Hon’ble Apex Court while deciding the appeals from the

transfer application decided by the High Court and transfer petitions in the case of Nahar

Industrial Enterprises Ltd (supra), has made observations in relation to the jurisdiction of the

civil court in such cases in its illuminating judgment. The Apex Court observed thus:

“85. If the Tribunal was to be treated to be a civil court, the debtor or even a third party must

have an independent right to approach it without having to wait for the Bank or Financial

Institution to approach it first. The continuance of its counter-claim is entirely dependant on the

continuance of the applications filed by the Bank. Before it no declaratory relief can be sought

for by the debtor. It is true that claim for damages would be maintainable but the same have

been provided by way of extending the right of counter-claim.

(Emphasis Supplied)

86. Debt Recovery Tribunal cannot pass a decree. It can issue only recovery certificates. [See

Sections 19(2) and 19(22) of the Act]. The power of the Tribunal to grant interim order is

attenuated with circumspection. {See Dataware Design Labs. v. State Bank of India, {[2005] 12

Comp. Cas. 176 (Ker) at 184}.Concededly in the proceeding before the Debt Recovery

Tribunal detailed examination; cross-examinations, provisions of the Evidence Act as also

application of other provisions of the Code of Civil Procedure like interrogatories, discoveries

of documents and admission need not be gone into. Taking recourse to such proceedings would

be an exception. Entire focus of the proceedings before the Debt Recovery Tribunal centers

round the legally recoverable dues of the bank.

96. The Tribunal was constituted with a specific purpose as is evident from its statement of

objects. The preamble of the Act also is a pointer to that too. We have also noticed the scheme

of the Act. It has a limited jurisdiction. Under the Act, as it originally stood, did not even have

any power to entertain a claim of set off or counter-claim. No independent proceedings can be

initiated before it by a debtor.

97. A debtor under the common law of contract as also in terms of the loan agreement may

have an independent right. No forum has been created for endorsement of that right.

Jurisdiction of a civil court as noticed hereinbefore is barred only in respect of the matters

which strictly come within the purview of Section 17 thereof and not beyond the same. The Civil Court, therefore, will continue to have jurisdiction. (Emphasis

Supplied)

98. Even in respect of set off or counter-claim, having regard to the provisions of sub-sections

(6) to (11) of Section 19 of the Act, it is evident :

a) That the proceedings must be initiated by the bank

b) Some species of the remedy as provided therein would be available therefor.

c) In terms of sub-section (11) of Section 19, the bank or the financial institution is at liberty to

send a borrower out of the forum.

d) In terms of the provisions of the Act, thus, the claim of the borrower is excluded and not

included.

e) In the event the bank withdraws his claim the counter-claim would not survive which may be

contrasted with Rule 6 of Order VIII of the Code.

f) Sub-section (9) of Section 19 of the Act in relation thereto has a limited application.

g) The claim petition by the bank or the financial institution must relate to a lending/borrowing

transaction between a bank or the financial institution and the borrower.

h) The banks or the financial institutions, thus, have a primacy in respect of the proceedings

before the Tribunal. i) An order of injunction, attachment or appointment of a receiver can be

initiated only at the instance of the bank or the financial institution. We, however, do not mean

to suggest that a Tribunal having a plenary power, even otherwise would not be entitled to pass

an order of injunction or an interim order, although ordinarily expressly it had no statutory

power in relation thereto.

j) It can issue a certificate only for recovery of its dues. It cannot pass a decree.

k) Although an appeal can be filed against the judgment of the Tribunal, pre-deposit to the

extent of 75 % of the demand is imperative in character.

l) Even cross-examination of the witnesses need not be found to be necessary.

m) Subject to compliance of the principle of natural justice it may evolve its own procedure.

n) It is not bound by the procedure laid down under the Code. It may however be noticed in this

regard that just because the Tribunal is not bound by the Code, it does not mean that it would

not have jurisdiction to exercise powers of a court as contained in the Code. `Rather, the

Tribunal can travel beyond the Code of Civil Procedure and the only fetter that is put on its

powers is to observe the principles of natural justice.'[ See Industrial Credit and Investment

Corpn. of India Ltd. v. Grapco Industries Ltd., (1999) 4 SCC 710]

The Tribunal, therefore, would not be a Civil Court105. The Civil Court indisputably has the jurisdiction to try a suit. If the suit is vexatious or

otherwise not maintainable action can be taken in respect thereof in terms of the Code. But if all

suits filed in the Civil Courts, whether inextricably connected with the application filed before

the DRT by the banks and financial institutions are transferred, the same would amount to

ousting the jurisdiction of the Civil Courts indirectly. Suits filed by the debtor may or may not

be counter claims to the claims filed by banks or financial institutions but for that purpose

consent of the plaintiff is necessary. (Emphasis Supplied)

106. It is furthermore difficult to accept the contentions of the respondents that the statutory

provisions contained in section 17 and 18 of the DRT Act have ousted the jurisdiction of the

civil court as the said provisions clearly state that the jurisdiction of the civil court is barred in

relation only to applications from banks and financial institutions for recovery of debts due to

such banks and financial institutions.

107. A civil court is entitled to decide the respective claims of the parties in a suit. It must come

within the purview of the hierarchy of courts as indicated in Section 3 of the Code. It will have

jurisdiction to determine all disputes of civil nature unless the same is barred expressly by a

statute or by necessary implication.

108. Although some arguments have been advanced before us whether having regard to the

provisions of Sections 17 and 18 of the Act the civil court jurisdiction is completely ousted, we

are of the view that the jurisdiction of the civil court would be ousted only in respect of the

matters contained in Section 18 which has a direct co-relation with Section 17 thereof, that is to

say that the matter must relate to a debt payable to a bank or a financial institution. The

application before the Tribunal would lie only at the instance of the bank or the financial

institution for the recovery of its debt. It must further be noted in this respect that had the

jurisdiction of the civil courts been barred in respect of counterclaim also, the statute would

have said so and Sections 17 and 18 would have been amended to introduce the provision of

counterclaim.

117. The Act, although, was enacted for a specific purpose but having regard to the exclusion

of jurisdiction expressly provided for in Sections 17 and 18 of the Act, it is difficult to hold that

a civil court’s jurisdiction is completely ousted. Indisputably the banks and the financial

institutions for the purpose of enforcement of their claim for a sum below Rs. 10 lakhs would

have to file civil suits before the civil courts. It is only for the claims of the banks and the

financial institutions above the aforementioned sum that they have to approach the Debt Recovery Tribunal. It is also without any cavil that the banks and the financial institutions,

keeping in view the provisions of Sections 17 and 18 of the Act, are necessarily required to file

their claim petitions before the Tribunal. The converse is not true. Debtors can file their claims

of set off or counter-claims only when a claim application is filed and not otherwise. Even in a

given situation the banks and/or the financial institutions can ask the Tribunal to pass an

appropriate order for getting the claims of set-off or the counter claims, determined by a civil

court. The Tribunal is not a high powered tribunal. It is a one man Tribunal. Unlike some

Special Acts, as for example Andhra Pradesh Land Grabbing (Prohibition) Act, 1982 it does not

contain a deeming provision that the Tribunal would be deemed to be a civil court.

118. The liabilities and rights of the parties have not been created under the Act. Only a new

forum has been created. The banks and the financial institutions cannot approach the Tribunal

unless the debt has become due. In such a contingency, indisputably a civil suit would lie.

There is a possibility that the debtor may file preemptive suits and obtain orders of injunction,

but the same alone, in our opinion, by itself cannot be held to be a ground to completely oust

the jurisdiction of the civil court in the teeth of Section 9 of the Code. Recourse to the other

provisions of the Code will have to be resorted to for redressal of his individual

grievances.(Emphasis Supplied)

119. It is also difficult to accept the contention of leaned counsel for the banks that the civil

court’s jurisdiction is not in consonance with the Act. We do not find the same to be correct. On

the ground of inconsistency in the procedures contained in the two Acts alone, the jurisdiction

of the civil court cannot be said to have been ousted.”

61. The aforementioned observations of the court can be summarized in the following manner:

a) The jurisdiction of civil court in the matter relating to DRT is barred only to the extent

of the jurisdiction which has been conferred upon DRT to decide the claims of the banks as per

section 17 of the Act. However, the reliefs available to the parties contesting the claims of the

bank including counter claim (incase the bank has not preferred the application), declaratory

reliefs are still within the domain of the civil court as they are neither expressly barred nor by

necessary implication.

b) The Apex court has made it clear that the tribunal cannot be equated with the civil court,

the civil court has got wider powers in its ambit including the one to grant declaratory relief and

thus such suit by the contesting parties seeking declarations are entertainable by the civil court.

c) The Supreme Court has also expressed its opinion about the manner of the entertaining

the suits by the civil court by expressing the same in the following words: “The Civil Court indisputably has the jurisdiction to try a suit. If the suit is vexatious or

otherwise not maintainable action can be taken in respect thereof in terms of the Code.”

“There is a possibility that the debtor may file preemptive suits and obtain orders of injunction,

but the same alone, in our opinion, by itself cannot be held to be a ground to completely oust

the jurisdiction of the civil court in the teeth of Section 9 of the Code. Recourse to the other

provisions of the Code will have to be resorted to for redressal of his individual grievances.”

62. As a matter of understanding and comprehension, the following propositions can be

discerned after analyzing above observations of the court :

a) The civil court will have jurisdiction to entertain the suits seeking declaration as to

invalidity of transactions including the derivative transaction in the present case as the same

falls within the exclusive domain of the civil court.

b) The Supreme Court in Nahar Industrial Enterprises Ltd (supra) has also laid down the

guideline about the entertaining of the suit by stating that the court may howsoever frivolous

the suit may be, entertain such suit and give the treatment as per the procedure envisaged under

code. All these observations are elucidative of the finding of entertaining the suit which do not

necessarily mean that the court must proceed in the suit in a given format. It is one thing to say

that the suit can be entertained by the civil court. However, it is altogether another thing to say

that the court should necessarily decide conclusively about the validity of the transaction at the

interim stage and cannot await for trial considering the overall surrounding circumstances

including the disputed questions of facts involved in the case, the timing of suit especially when

the applications made before the DRT are pending consideration, prima facie appearance of

validity of debt claim, etc. Ultimately, the said suit is for declaratory relief seeking declaration

that the transactions are invalid and consequential relief of the injunction which are all the

matter of the final relief. Therefore, the court while at the same time can proceed to entertain

the suit does not mean ipso facto that the interim relief must follow. In the given case where

the court finds prima facie that the matter relates to a valid debt of the banks, the court can then

await the outcome of decision of DRT and trial to conclude in order to form conclusive opinion

as to whether the transactions are valid or invalid.

c) The Apex court in Nahar Industrial Enterprises Ltd (Supra) has made the observations

about the civil court jurisdiction which is not barred in the given sets of facts wherein in the

cases of preemptory nature wherein the Banks or financial institutions have not raised their

claim before the DRT and the aggrieved party intending to raise their claim, the civil suit has

been held to be maintainable. It however does not mean that the court will not entertain the cases involving similar reliefs when the timing of the suits is pursuant to the banks have

approached DRT. But certainly, the court is not powerless to draw inference and also to

consider whether the matter which is urged before it pertains to the debt and its comments on

the validity of the transaction at the stage prior to the decision of DRT and more so when the

DRT claim is filed by the banks prior in point of time can lead to grant of final relief to the

party contesting the claim of the bank or the plaintiff which may affect the banks claim

prejudicially without even giving the full opportunity to the parties to prove their case in trial.

63. Accordingly, following Nahar Industrial Enterprises Ltd (supra), I find that the present suit

is maintainable as the suit pertains the declaratory relief where in the prayers have been sought

from this court to declare the transactions dated 27.09.2007 and 10.10.2007 as illegal and void

and consequential reliefs of injunctions which is well within the jurisdiction of the this court to

decide. I also hold that this court can entertain the present suit but simultaneously can also

examine the overall circumstances in the matter wherein it may come to the prima facie opinion

of validity of transactions on the basis of the material placed on record for the purposes of

disposing of injunction application, but can await the conclusion of trial in order to form

conclusive opinion about the validity of the transaction or claim. This is due to the reason that

the parties must be given full opportunity to prove their case on trial on the disputed questions

of fact. Furthermore, the interim relief must not also lead to grant of final relief.

64. Let me now consider the rival submissions of the parties in view of my aforementioned on

other points argued by them.

65. Before arriving my findings in this respect as to whether the plaintiff at this stage is entitled

to get relief, it is necessary to mention the following admitted positions in the matter:

a. The plaintiff has also challenged the validity of the above mentioned two transactions before

the DRT.

b. The pleadings in this matter are yet to be completed.

66. Admittedly, the bank has dealt with the plaintiff on principal to principal basis. The

relevant clauses of the master ISDA Agreement executed by the plaintiffs with the bank. The

relevant extract reads as under:

“(vi) Relationship between parties: Each party will be deemed to represent to the other party on

the date on which it enters into a Transaction that (absent a written agreement between the

parties that expressly imposes obligations to the contrary for that transaction): (a) No Reliance: It is acting for its own account, and it has made its own independent decision

to enter into that Transaction and as to whether that Transaction is appropriate or proper for it

based upon its own judgment and upon advice from such advisers as it has deemed necessary.

It is not relying on any communication (written or oral) of the other party as investment advice

or as a recommendation to enter into that Transaction; it being understood that information and

explanations related to the terms and conditions of a Transaction shall not be considered

investment advice or a recommendation to enter into that Transaction. No communication

(written or oral) received from the other party shall be deemed to be an assurance or guarantee

as to the expected results of that Transaction.

(b) Assessment and Understanding: It is capable of assessing the merits of and understanding

(on its own behalf or through independent professional advice), and understands and accepts,

the terms, conditions and risks of that Transaction. It is also capable of assuming, and assumes,

the risks of that Transaction.

(c) Status of Parties: Each party is entering into this Agreement and performing its obligation

hereunder solely as principal on its own behalf and not as an agent on behalf of any third party

or is not acting as a fiduciary for or an adviser to the other party in respect of that Transaction.”

67. The ISDA Agreement also provides for a lien on the other accounts of the plaintiff for any

dues which arise out of the present derivative transactions. The relevant clause reads as under:

“(f) Set Off: Party B shall have the paramount right of set – off and lien, irrespective of any

other lien or charge, present as well as future on the deposits of any kind any nature (including

fixed deposits) held/balance lying in any accounts of the Party A, whether in single name or

joint name(s) and on any monies, securities, bonds and all other assets, documents and

properties held by/under the control of Party B (whether by way of security or otherwise

pursuant to any contract entered/to be entered into by the Party A in any capacity) to the extent

of all outstanding dues, whatsoever, arising as a result of any Party B’s services extended to

and/or used by Party A and/or as a result of any other facilities that may be granted by Party B

to Party A. Party B is entitled without any notice to Party A to settle any indebtedness

whatsoever owned by Party A to Party B, (whether actual of contingent, or whether primary or

collateral, or whether joint/or several) hereunder or under any other document/agreement, by

adjusting, setting off any deposit (s) and/or transferring monies lying to the balance of any

account (s) held by Part A with Party B notwithstanding that the deposit(s)/balances lying in

such account(s) may not be expressed in the same currency as such indebtedness. Party B’s rights hereunder shall not be affected by Party A’s bankruptcy or winding up. It shall be Party

A’s sole responsibility and liability to settle all disputes/objections with any such joint account

holders.

In addition to the above mentioned right or any other right which Party B may at any time be

entitled whether by operation of law, contract or otherwise, Party A authorizes Party B; (a) to

combine or consolidate at any time all or any of the accounts and liabilities of Party B with or

to any branch of Party B; (b) to sell any of Party A’s securities or properties held by Party B by

way of public or private sale without having to institute any judicial proceeding whatsoever and

retain/appropriate from the proceeds derived there from the total amounts outstanding to Party

B from Party A, including costs and expenses in connection with such sale; and (c) in case of

cross currency set off, to convert an obligation in one currency to another currency at a rate

determined at the sole discretion of Party B.”

68. The document relating to each derivative transaction also contained the following

declaration made by ICICI:

“ICICI Bank has not taken any steps to ensure that the transaction contemplated hereunder is

suitable for the Customer and ICICI Bank is acting as principal and not as the Customer’s

adviser or in a fiduciary capacity in respect of this proposed transaction or any other transaction

unless otherwise specifically agreed in writing. Accordingly, this document does not have

regard to the specific investment objectives, financial situation and the particular needs of any

specific person who may receive this document and does not constitute investment, legal

accounting or tax advice, or a representation that any investment is suitable or appropriate to

any specific person’s individual circumstances or otherwise constitute and personal

recommendation to any specific person.

The information herein is not to be taken in substitution for the exercise of judgment by the

Customer who should obtain separate investment legal accounting, tax or financial advice,

before entering into any transaction, the Customer should take steps to ensure that he/she/they

understands/understand the transactions contemplated hereunder and risks thereof and has/have

made an independent assessment of the appropriateness of the transactions contemplated

hereunder in the light of the customer’s own specific investment objectives, financial situation

and particular needs. In particular, the customer may wish to seek advice from a licensed or exempt finance adviser or make such independent investigations, as he/she/they

considers/consider necessary or appropriate for such purposes. ICICI Bank, its related

companies, their Directors and/or employees may have interests or positions in, any may effect

transactions in the underlying product (s) mentioned in this document.”

69. The plaintiff made the declarations and he has referred to the following specific

declarations:

“(i) That as on date and as on the date of the maturity of the Transaction the Counterparty

has and shall have the underlying exposure for which the Transaction has been entered into

as a hedge and as on date there is no other hedge already in place for the said exposure. The

details of the underlying exposure are as follows :

(ii) That the notional principal amount of the Transaction does not exceed the outstanding

amount of the underlying transaction which, the counterparty seeks to hedge vide the

transaction;

(iii) That the maturity of the hedge does not exceed the unexpired maturity of the

underlying transaction;

(iv) That in case the underlying exposure for the transaction pertains to balance held in

EEFC accounts, the transaction shall not be cancelled.

(v) That in case the underlying exposure for the transaction pertains to a foreign currency

loan or bond, all requisite approvals for the same have been taken including approvals from

RBI or allocation of loan identification number;

(vi) That in case this Transaction does not have a specific underlying and is being booked

on past performance basis, booking of this transaction will not result in breach of the

counterparty’s aggregate past performance limits.

(vii) That the Board of Directors of the Counterparty has drawn up a risk management

policy and laid down guidelines in accordance with the Master Circular on Risk Management

and Inter Bank Dealings (Master Circular No.06/2005-06 dated July 1, 2005) issued by Reserve Bank of India (the “Master Circular”). The Counterparty undertakes to provide

periodical review reports and annual audit reports referred to in the Master Circular upon

the request of ICICI Bank from time to time; and

(viii) That in entering into the Transaction and performing its obligations there under the

Counterparty is in full compliance with all applicable RBI/FEMA regulations and the

counterparty shall do all acts and furnish to ICICI Bank all required documents in order to

ensure compliance with such regulations.”

70. The plaintiff is a company and before entering into derivate transactions with the bank, the

Board passed following resolution for the said purpose:

“Certified true copy of the resolution passed by the Board of Directors of the Company in its

meeting held on 25th August, 2007.

The Chairman informed the Board that the Company intends to enter into derivative

transactions with ICICI Bank.

The Chairman accordingly requested the Board to pass the following resolutions for the above

mentioned purpose, which after careful considerations and some discussions were passed.

RESOLVED THAT the Company do enter into ISDA Agreement (“Agreement”) with ICICI

Bank for the purpose of entering into derivative transactions from time to time and the

Company do accept such terms, regulations, conditions laid down by ICICI Bank for the

purpose.

FURTHER RESOLVED THAT any of the following directors Mr. Sushil Gupta, Managing

Director, Mr. Sandeep Gupta, Jt. Managing Director & Mr. Manish Gupta, Director of the

Company be and is hereby authorized to sign the Agreement or any other document with

ICICI Bank, on behalf of the Company for entering into derivative transactions, execute such

deeds, documents and other writings as may be necessary or required for this purpose and to

deliver any other document, including a copy of the risk management policy of the company,

as and when requested by ICICI Bank and to affix the common seal of the company on any such document wherever necessary, in accordance with the Articles of Association of the

Company.

FURTHER RESOLVED THAT any of the following directors Mr. Sushil Gupta, Managing

Director, Mr. Sandeep Gupta, Jt. Managing Director and Manish Gupta, Director of the

Company be and are hereby authorized to enter into transactions pursuant to and under the

Agreement on behalf of the Company from time to time and do all other related acts, deeds

and things, including cancellation, rebooking or amendment of the transactions and to deliver

the necessary documents as required for and on behalf of the Company.

FURTHER RESOLVED THAT ICICI Bank be and is hereby authorized to accept as

instructions and all necessary documents from any of the above authorized persons with

respect to the transactions entered/cancelled/amended between the Company and ICICI Bank

pursuant to the Agreement. The Company does agree to hold ICICI Bank harmless and their

interest protected on account of acting upon such instructions by the above signatories in the

manner provided.

FURTHER RESOLVED THAT Chairman of the Board/Secretary of the Company be and is

hereby authorized to furnish a copy of the resolution certified as true to ICICI Bank Group.

Certified as a true copy of the original.”

71. Firstly, the submissions have been made by the parties on the validity of the transactions

dated 27.09.2007 and dated 10.10.2007. It has been argued at length the derivative transactions

are not made by the defendant under the prescribed purpose. It has also been argued by the

plaintiff that the derivative transactions in generality are void and illegal against the public

policy.

72. I have given due consideration to the submission advanced by the parties on validity of the

transaction. I find that the submissions that the transactions are invalid on account of being

beyond the permissible criterion as to hedge the foreign currency exposure and the notional

amount are mixed questions of fact and law. It is the plaintiff’s case that it is beyond the

prescribed criterion as there is no hedging of risk and also no transformation of long term

liability. On the otherhand, the defendant contends that it is perfectly justified in entering in to valid transaction as there is no bar of entering into such transactions on the basis of the loans

taken from bank and it is not beyond the permissible norms laid down by RBI. To support its

contention, bank also relies upon the provisions which provide that the derivative contracts

entered into by the banks for specific purposes are valid. Thus, it becomes a disputed question

of fact and law. It is thus wiser to relegate the parties to trial to prove this question in order to

enable this court to form the conclusive opinion about the validity or invalidity of the

transaction and ultimate entitlement of the plaintiff to the declaration.

73. Secondly, one should also not forget that DRT is already is in seisen of the dispute and the

plaintiff has raised the same defences which it is urging before this court on the aspect

invalidity of the said transactions which are yet to be examined. The comments from this court

finding favour to the either side’s contentions in relation to the legality of the transaction will

render DRT claim in my view valueless exercise or useless formality. This is another reason for

this court to await the trial and examine the matter by doing in depth analysis after trial rather

than prematurely without having written statement giving conclusive finding as to the validity

of the transaction.

74. Thirdly, this court is deciding the injunction application on the basis of the suit for

declaration that the transactions are invalid. The prima facie case has to be seen for the grant of

the interim injunction. There is no apparent illegality on the face of the transactions which

appears so glaringly which persuades this court to take prima facie view of invalidity.

Therefore, the interim relief application must be decided within the parameters for the grant of

injunction in order to grant or refuse interim injunction and the court should desist from

granting final relief under the interim relief application.

75. The other factor which militates against the forming of the conclusive opinion on the

legality or illegality of the two transactions is conduct of the plaintiff as it has approached this

court only once the recovery proceedings are launched before the DRT. The plaintiff has also

filed suit in Faridabad court seeking similar relief prior to the filing of present suit which

ultimately was withdrawn during the pendency of the present suit. Thus, the whole sole

intention of the plaintiff seems to be to seek declaration as to invalidity of the transactions

which may affect the case of the recovery before the Debt Recovery Tribunal. Of course, the

plaintiff is entitled to seek declaration under the law that the transactions are not valid, but the

timing to approach this court when the DRT is already seized of the matter does not persuade

this court to go into the question of legality at this stage in addition to the existence of disputed

question of facts warranting trial. The plaintiff has been communicating with the defendant bank for the last more than three years. The plaintiff if at all was finding fault in the

transactions ought to have immediately approached the court at the time when the transaction

was in currency, more so when the transaction was completed or even prior to the launch of

recovery proceedings before DRT as a matter of preemptive measure. However, the plaintiff

waited all along till the time recovery proceedings are launched before DRT and have

approached this court belatedly seeking declaration of invalidity of such transaction and stay of

proceedings of the DRT so that the recovery proceedings before DRT may be prejudicially

affected. The said relief due to the same reasons also cannot be granted.

76. Suffice it to say at this stage for the purposes of forming a prima facie opinion, the

submission of the plaintiff that the derivative transactions cannot be entered into by the banks

in cases of Rupee liability or otherwise in cases of loan is not correct as the bare perusal of the

provisions which are cited at the bar including Section 45 U and V of RBI Act, circular dated

1.7.2010 of RBI, during the course of hearing itself make it evident that the Defendant or the

other banks are empowered to enter into the derivative transactions on behalf of the client/

plaintiff. Further, the clients like the plaintiffs having Rupee liability in the form of loan to the

banks can authorize the banks enter into such derivative transactions on their behalf. There is

no such apparent illegality on face of it at this prima facie stage, which persuades this court to

interfere and grant injunctory relief in the present case against the proceedings pending before

DRT or to hold that the transactions are illegal.

77. The arguments of the plaintiff that there is no consensus ad idem at the time of entering

such derivative contracts can be also be fairly examined at the time hearing of the claims before

DRT tribunal. For the purposes of the prima facie view, it is observed that there is a resolution

passed by the plaintiff company which has been relied upon by the defendant to show that the

plaintiff is made aware of the transaction and the same is also evident from the letters from the

record wherein the defendant is called upon to credit the earnings arising from the transactions

made from time to time. Thus, at this prima facie stage from the material shown on the record,

it cannot be said that the contract of derivative transaction is vitiated by the consent. It is made

clear that this point is different from the issue of legality of the transactions and trades made

beyond the purposes which is to be decided by DRT and that is reason the same is being

commented upon by the court.

78. I find that there is also no force in the argument of the plaintiff that prayer (a) in the

injunction application is partly given up to the extent of stay of proceedings of DRT and partly

pressed to the extent of adjudicating illegality of the transaction. The answer to this is my finding that the in the event, this court will delve into enquiry of adjudicating the legality of

illegality of the said transaction, the claims before the DRT which is the appropriate fora will

be adversely affected. Therefore, the request for consideration of prayer (a) of injunction

application in part cannot be acceded to.

79. Many submissions made by the plaintiff before this court on the aspect of the defendant to

be called upon to refrain from declaring the plaintiff as a willful defaulter. The argument

advanced by the plaintiff to elaborate the submission of willful defaulter is that the debt must be

valid in law in order to call plaintiff as willful defaulter and therefore, this court must first

decide the validity of the debt in law.

80. I have given careful consideration the submission of the plaintiff and am of the view that in

view of my finding that there is no apparent illegality on the fact of it in the transactions as the

bank/defendant is empowered to enter into the derivative transaction on behalf of the clients.

Even otherwise, the said issue has to go into detailed analysis about the legality or illegality of

transactions, of which the DRT is seized of the matter.

81. This question that the outstanding dues/ overdues arising from the non performing assets or

derivative transactions are to be treated as debts of the banks and therefore the Banks can

proceed to declare the defaulters as willful defaulters on the basis of grounds mentioned in the

circular being meted out is no longer res integra. The Division Bench of Bombay High Court in

the recent case of Finolex Industries Limited and another v. Reserve Bank of India and others,

Writ Petition (Lodg.) No.345/2011, decided on 23/24.08.2011, who after doing careful analysis

provisions of RBI Act and circulars has articulated this proposition in the following words:

“The Reserve Bank of India Act of 1934, as noted earlier, was amended on 9 January 2007 to

provide inter alia for the regulation of transactions in derivatives and money market

instruments. As an incident of its regulatory power the Reserve Bank of India issued diverse

circulars from time to time. These circulars inter alia cover the field of laying down (i)

Prudential norms for off balance-sheet transactions; (ii) Exposure norms; (iii) Norms pertaining

to non performing assets, among others. A brief review of those circulars would be necessary:-

i) On 8 August 2008, the Reserve Bank of India issued a circular to enunciate prudential norms

for off balance-sheet exposures of banks. The Reserve Bank of India clarified that initially only

amounts due to a bank under derivative contracts which remained unpaid in cash for a period of

ninety days or more from the specified date of payment would be classified as non-performing

assets. The circular laid down in paragraph 2.1 the method of computing a credit exposure arising on account of interest rate and foreign exchange derivative transactions and gold using

the current exposure method as set out therein. Norms for capital adequacy were also spelt out

in paragraph 2.2 of the circular;

ii) On 13 October 2008 the Reserve Bank of India in a circular addressed to all the commercial

banks revisited the prudential norms for off balance-sheet exposures. The circular specifically

dealt with the asset classification status of over due payments in respect of derivative

transactions. Paragraph 2.1 of the circular inter alia was as follows:

“2.1 Asset Classification

(i) The overdue receivables representing positive mark-to-market value of a derivative contract

will be treated as a non-performing asset, if these remain unpaid for 90 days or more. In that

case all other funded facilities granted to the client shall also be classified as non-performing

asset following the principle of borrower- wise classification as per the existing asset

classification norms;

(ii) If the client concerned is also a borrower of the bank enjoying a Cash Credit or Overdraft

facility from the bank, the receivables mentioned at item (i) above may be debited to that

account on due date and the impact of its non-payment would be reflected in the cash

credit/overdraft facility account. The principle of borrower-wise asset classification would be

applicable here also, as per extant norms.”

The circular emphasized that overdues remaining unpaid over more than ninety days under a

derivative contract would be treated as a non-performing asset. Moreover, other funded

facilities granted to the client would also be classified as non-performing assets following the

principle of borrower wise classification. Further if the client was also a borrower enjoying a

cash credit or overdraft facility, it was specified that the receivables under a derivative

transaction would be debited to that account. The principle of a borrower wise classification

was therefore applied by the Reserve Bank of India to clearly include within its sweep the dues

owing to commercial banks on account of derivative transactions;

(iii) On 29 October 2008 the Reserve Bank of India in a circular addressed to scheduled

commercial banks clarified that on a review of the matter it has been decided to confine the

applicability of the principle of a borrower wise asset classification to the overdues arising only from forward contracts and what was described as ‘Plain Vanilla Swaps and options’. The

bank clarified that the dues under foreign exchange derivative contracts (other than forward

contracts and Plain Vanilla Swaps and options) would be parked in a separate account to be

maintained in the name of a client/ counter party. This amount even if overdue for a period of

ninety days or more, not render the other funded facilities provided to the client as nonperforming assets on account of the principle of a borrower wise asset classification;

(iv) On 9 April 2009 the Reserve Bank of India addressed a circular to the Chief Executive

Officers of all primary urban co-operatives banks. The circular prescribed formats for the

declaration of information by the borrower at the time of applying for a credit facility and the

format for exchange of information among banks as regards borrowers enjoying credit facilities

from more than one bank. The existing formats were revised to reflect information relating to

derivative transactions entered into by banks with borrowers and the unhedged foreign currency

exposures of borrowers. The circular leaves no manner of doubt that in seeking declarations in

relation to credit information pertaining to borrowers, the Reserve Bank of India intended to

bring within its purview credit information pertaining to outstandings under derivative

transactions. Annexure I is the format prescribed by the Reserve Bank of India for information

to be declared by borrowing entities while seeking finance under multiple banking

arrangements. Heading A requires details of borrowing arrangements from other banks to be

furnished. Among the details of borrowing arrangements are derivative contracts entered into.

The overdue position is to include amounts due under derivative contracts;

(v) On 1 July 2010 the Reserve Bank of India issued a master circular on exposure norms to all

scheduled commercial banks. The master circular provided a framework of rules, regulations

and instruments issued by the Reserve Bank of India relating to credit exposure limits for

individual and group borrowers and credit exposure to specific industry or sectors and for the

capital market exposure of banks. This circular was conceived as a prudential measure aimed at

better risk management and avoidance of concentration of credit risks. Paragraph 2.1.3 of the

circular defined the expression “exposure” to include credit exposure (funded and non funded

credit limits) and investment exposure including underwriting and similar commitments.

Paragraph 2.1.3.2 required banks for the purposes of the exposure norms to compute their credit

exposures arising on account of interest rate and foreign exchange derivative transactions and

gold, using the current exposure method as detailed therein; (vi) On 1 July 2010 the Reserve Bank of India issued a master circular on prudential norms on

income recognition, asset classification and provisioning pertaining to advances. The circular

clarified that in line with the international practices and in pursuance of the recommendations

made by the Narasimhan Committee, the Reserve Bank of India had introduced in a phased

manner prudential norms to bring in greater consistency and transparency in public accounts.

Paragraph 2.1.2 of the circular defines non-performing assets as a loan or an advance which

fulfills the description contained in clauses (i) to (vii). Sub clause (vii) specifically incorporates

dues under a derivative transaction as follows:-

“vii. In respect of derivative transactions, the overdue receivables representing positive markto-market value of a derivative contract, if these remain unpaid for a period of 90 days from the

specified due date for payment.”

The Reserve Bank of India clearly stipulated a non-performing asset to be loan or advance

where dues under a derivative transaction remained unpaid for a period of ninety days or more.

Paragraph 4.2.7 stipulates that the asset classification would be borrower wise and not facility

vise. That was because it was difficult to envisage a situation where only facility to a borrower

or one investment in any of the securities issued by the borrower becomes a problem and not

the others. The Reserve Bank of India was of the view that all securities issued by a borrower

would have to be treated as non-performing assets and not merely the particular facility or

investment which has become irregular. As regards derivative transactions, paragraph 4.2.7

stipulated that overdues remaining unpaid for more than ninety days would be treated as nonperforming assets. Where the ovedues arose on account of forward contracts and plain vanilla

swaps and options and had become non-performing assets, all other funded facilities granted to

the client were also classified as non-performing assets following the principle of borrower

wise classification. On the other hand, in respect of foreign exchange derivative contracts other

than those specified above, which were already entered into between2007-08, the amount

receivable would be parked in a separate account and would not render other funded facilities

provided to the client as non-performing assets.

25. Now it is in this background, that it would be necessary to advert to the language which

has been used in paragraph 2.1 of the master circular on willful defaulters. The essence of clause (a) of paragraph 2.1 is a default in meeting payment or repayment obligations despite the

existence of a capacity to honour the obligation. Clause (a) therefore does not bring within its

purview a mere default but a default which is coupled by a capacity to honour obligations. The

use of the expression “lender” cannot be regarded in the restrictive sense as postulating that a

willful default can arise only where there is a relationship of a borrower and lender and to

exclude cases of a debt due to a bank or financial institution under a derivative transaction. The

language of the Reserve Bank of India is in an administrative circular and in construing that

language the Court must give a purposive interpretation by which the circular is read in the

context of an overall regulatory scheme imposed by the Reserve Bank of India of ensuring

financial discipline on the part of commercial banks and other financial institutions. While

analyzing the regulatory circulars of the Reserve Bank of India, all of which are

contemporaneous in nature, it has become evident before the Court that in imposing norms for

disclosure, prudential norms for off balancesheet transactions and norms in regard to computing

nonperforming assets, the Reserve Bank of India has expressly brought within the purview of

its requirements overdues which are payable under derivative transactions. Obviously, overdues

under derivative transactions have a significant impact on overall outstandings of counter

parties to banks and financial institutions and have a material bearing both on creditworthiness

and the amount of exposure of the bank, or as the case may be, the financial institution. There

would be no conceivable reason for the Reserve Bank of India, while dealing with the issue of

willful defaulters, to exclude a default which had arisen out of derivative transactions.

Significantly, the terms of the circular use the expression “payment / repayment obligations”.

Consequently, the use of the word “lender” in paragraph 2.1 has not been in a restrictive sense

so as to confine the application of the circular only to a situation where the relationship of a

borrower and lender existed between the bank and its client under which a loan or advance had

been granted to the borrower. (Emphasis Supplied)

29. Counsel appearing on behalf of the Petitioners submitted that the views which have

been expressed by the Reserve Bank of India on affidavit cannot be relevant to the construction

of a circular. Counsel placed reliance on a decision of a Full Bench of this Court in Awdhesh

Narayan K. Singh v. Adarsh Vidya Mandir Trust7 which held that interpretation of a statutory

provision is a judicial function and it is not open to the executive arm of the government to

insist that its interpretation should be accepted by the Court. That position in law is indeed

settled. Equally, when the Court is dealing with a circular issued by an expert body, particularly such as the Reserve Bank which has been vested with a critical function of ensuring financial

and monetary stability, the Court would be justified in considering the views which have been

expressed by the expert body vested with the statutory power to regulate and control the

banking system. Where those views are clearly in conflict with a statutory provision or a

circular made in exercise of a statutory power, the view of the body, however expert, cannot

override a statutory prescription. But in a case such as the present, the views of the Reserve

Bank of India are, as we have said earlier, relevant to construe the reason for the regulation, the

object of the regulation, the ills that were sought to be remedied and the purpose of bringing

derivative transactions within the fold of regulatory compliance. In our view, the Court would

be justified in placing a great deal of deference on the views which have been expressed by the

Reserve Bank of India. Those views have in any event accorded with the interpretation that has

been placed by the Court on the relevant terms of the circular.

33. For these reasons, we have come to the conclusion that the master circular on defaulters

issued by the Reserve Bank of India must for the purposes of clause (a) of paragraph 2.1

comprehend within its purview dues arising out of derivative transactions. Dues owing to banks

and financial institutions under derivative transactions constitute a debt due and owing and

form part of the assets. The circulars issued by the Reserve Bank of India demonstrate that

these dues would fall for classification as nonperforming assets. There is no reason or

justification to read clause (a) of paragraph 2.1 of the master circular so as to exclude dues

arising out of derivative transactions.”

82. From the reading of the above observation of Bombay High Court in Finolex Industries

Limited and another (supra), it is beyond a cavil of any doubt to hold that the overdues arising

from the non performing assets like derivative transactions are called as debts of the banks. The

said relationship between the bank and the client is of borrower and lender. Therefore, the

submission of the plaintiff that the debt in those circumstances must be a valid one so as to

come within the purview of willful defaulter cannot be accepted. Rather, by its very nature if

the said money becomes due, the same is called as debt and the failure to pay the same shall be

categorized as default. The said debt if becomes a subject matter of challenge before the suit

court, it cannot be argued that by the very challenge itself, the banks should stop calling the

plaintiff or defaulters as willful defaulters. Ultimately, it is a matter of commerce and RBI has

to examine under the law by supervising the creditworthiness of the persons taking loans and advances from time to time. Therefore, the monies of the other banks cannot be put to stake by

stopping the banks/ defendant in the present case from performing their/its legal obligations to

declare the defaulters as willful defaulter on the mere basis of the challenge of the debt when

this court does not find any patent illegality on the face of it on prima facie view leaving the

question of legality of the transactions to be decided before the DRT.

83. Further, it has been argued on behalf of the plaintiff that the plaintiff cannot be categorized

as willful defaulter under clause (a) of the circular as the one having the funds and it is not

paying the debt. This has been argued by the putting reliance of some statements made by the

defendant bank in the DRT tribunal that the liabilities of the plaintiff exceeds the assets,

therefore, as per the plaintiff, it cannot be categorized as the willful defaulter. I do not find

concurrence with the submission advanced by the plaintiff due to following reasons:

a) Firstly, it is factual enquiry as to whether the plaintiff infact has the funds to pay the debt or

he is incapable of paying the same. Some statement of bank made before the DRT in its

application would be little assistance to believe or disbelieve unless it is examined thoroughly

that the plaintiff in fact do not means or capacity to meet such dues. The said factual enquiry

and fact finding can be appropriately done by DRT before which such application is made by

the defendant bank and the statement is made thereof. All the grounds of arguments in order to

enable the plaintiff to argue the issue of willful defaulter are left open.

b) Secondly, it has been argued by the plaintiff that the defendant’s own showing before DRT

reveals that its liabilities exceeds its assets, that by itself also cannot make this court to believe

that the plaintiff is incapable of making good of the debts due in the present case. There is

difference in saying that the liability of the plaintiff exceeds the assets and the plaintiff is

incapable of paying debt on account of lack of funds. Further, the plaintiff is a private limited

company, this court is not sure as to whether by prioritizing the liabilities, the plaintiff is

capable of paying the debts in the present case.

All this, therefore, becomes factual enquiry as it cannot be said with certainty at this

stage as to whether the plaintiff actually does not possess means to meet the debts. Therefore, it

is apt to confine at this stage that there is a valid debt on prima facie view for the purposes of

declaring the plaintiff as willful defaulter.

84. The arguments have been advanced by the plaintiff about the duty to mitigate loss by the

defendant. The defendant disputes the same as it is under no obligation to reduce the loss. This again becomes a fact finding which has to be gone into by the DRT. The said argument will

come to the aid of the plaintiff only at the time of deciding the claim and the amount of claim

which is to be awarded by the DRT. Therefore, the examination of the submission becomes

immaterial at this stage.

85. No submission of the parties remains unaddressed. It is appropriate to discuss the three

cardinal rules of the grant of temporary injunction which are:

a) Primafacie case

b) Balance of convenience

c) Irreparable loss

86. The plaintiff has failed to show any prima facie case for grant of injunction in its favour as

the question of legality of the transactions can be conclusively determined after the trial

pursuant to examining the defence of the defendant and evidence of the parties as the same is

disputed question of fact and law. Therefore, no prima facie case of injunction has been made

by the plaintiff.

87. As far as the balance of convenience and irreparable loss are concerned, it is argued by the

learned counsel for the plaintiff that the liabilities of the plaintiff are more than the assets and

the defendant No.1 is aware and pleaded the same before DRT. Further, the defendant No.1

only on 29.07.2011 has informed that the plaintiff w.e.f. 30.06.2011 has been declared as

willful defaulter, i.e. after filing of the present suit. In order to strike the balance at this stage,

the plaintiff has also filed an affidavit before this Court on 12.08.2011 informing the Court that

the plaintiff is willing to furnish a bank guarantee to the tune of Rs.1.25 crores before this Court

for the purpose of securing the prayer (b) of the interim application which would be without

prejudice to the rights and contentions of the plaintiff to contest the matter on merit.

88. This Court is not satisfied with the submission of the plaintiff on this aspect as it is not

denied by the plaintiff that the plaintiff is running its business. It is yet to be examined as to

whether the plaintiff’s statement, that its liabilities are more than its assets, is correct. Further,

as the plaintiff is carrying on its business, it is for the plaintiff to choose its priority. As such

contention of the plaintiff on this aspect cannot be accepted. As far as declaration of two

transactions to be null and void as sought by the plaintiff is concerned, this Court has already come to the conclusion that prima facie the question of legality of transactions can be

conclusively determined after trial.

89. As far as the question of willful defaulter is concerned, prima facie it is found that the order

has been passed by the defendant No.1 in compliance with the rules and bylaws made by the

RBI. Therefore, merely on deposit of token amount as a security, the relief sought by the

plaintiff cannot be granted unless the plaintiff deposits the entire principal amount due by way

of bank guarantee in order to secure the interest of the defendant No.1, if so advised, the

plaintiff may deposit the said amount and file an application before Court for modification of

the order.

90. It is made clear that the DRT shall decide the claim pending before uninfluenced by the

findings of this court. The challenge to the transactions dated 27.9.2007 and 10.10.2007 shall

also be made available to the defendant which may be urged before the DRT and the tribunal

shall decide the said claim considering the rival contentions of the parties.

91. The observations made herein are tentative in nature and shall not have any bearing at the

time of deciding the suit after the trial. Accordingly, IA No. 10686/2011 is dismissed. No

costs.

MANMOHAN SINGH, J

OCTOBER 14, 2011

injunction without declaration

“The court laid down the following tests which may be adopted as a working rule for determining the attributes of ‘settled possession’ :
i) that the trespasser must be in actual physical possession of the property over a sufficiently long period;
ii) that the possession must be to the knowledge (either express or implied) of the owner orwithout any attempt at concealment by the trespasser and which contains an element of animus possidendi. The nature of possession of the trespasser would, however, be a matter to be decided on the facts and circumstances of each case;
iii) the process of dispossession of the true owner by the trespasser must be complete and final and must be acquiesced to by the true owner; and
iv) that one of the usual tests to determine the quality of settled possession, in the case of culturable land, would be whether or not the trespasser, after having taken possession, had grown any crop. If the crop.”

—————————————————————————————————————————————-

Rame Gowda (D) By Lrs vs M. Varadappa Naidu (D) By Lrs. & Anr on 15 December, 2003
Author: R Lahoti
Bench: R Lahoti, B Srikrishna, G Mathur

CASE NO.:

Appeal (civil) 7662 of 1997

PETITIONER:

Rame Gowda (D) by Lrs.

RESPONDENT:

M. Varadappa Naidu (D) by Lrs. & Anr.

DATE OF JUDGMENT: 15/12/2003

BENCH:

R.C. Lahoti, B.N. Srikrishna & G.P. Mathur

JUDGMENT:

J U D G M E N T

R.C. Lahoti, J.

The defendant is in appeal feeling aggrieved by the judgment and decree of the Trial Court, upheld by the High Court, restraining him from interfering with the possession and enjoyment of the suit schedule property by the respondent.

The plaintiff and the defendant  both have expired. Their LRs are on record. For the sake of convenience we are making reference to the original parties i.e. the plaintiff and the defendant.

The suit property, a piece of land, is situated in Arekempanahally, 36th Division. It appears that the plaintiff and the defendant both claim to be owning two adjoining pieces of land. There is a dispute as to the exact dimensions and shapes (triangular or rectangular) of the pieces of land claimed to be owned and possessed respectively by the two parties. The real dispute, it seems, is about the demarcation of the boundaries of the two pieces of land. However, the fact remains, and that is relevant for our purpose, that the piece of land which forms the subject-matter of the suit is in the possession of the plaintiff-respondent. The plaintiff-respondent was raising construction over the piece of land in his possession, and that was obstructed by the defendant-appellant claiming that the land formed part of his property and was owned by him. The plaintiff filed a suit alleging his title as also his possession over the disputed piece of land. The Trial Court found that although the plaintiff had failed in proving his title, he had succeeded in proving his possession over the suit property which he was entitled to protect unless dispossessed therefrom by due process of law. On this finding the Trial Court issued an injunction restraining the defendant- appellant from interfering with the peaceful possession and enjoyment of the plaintiff-respondent over the suit property.

It is contended by the learned counsel for the defendant-appellant that the suit filed by the plaintiff was based on his title. The suit itself was defective inasmuch as declaration of title was not sought for though it was in dispute. Next, it is submitted that if the suit is based on title and if the plaintiff failed in proving his title, the suit ought to have been dismissed without regard to the fact that the plaintiff was in possession and whether the defendant had succeeded in proving his title or not. We find no merit in both these submissions so made and with force.

Salmond states in Jurisprudence (Twelfth Edition), “few relationships are as vital to man as that of possession, and we may expect any system of law, however primitive, to provide rules for its protection. . . . . . . Law must provide for the safeguarding of possession. Human nature being what it is, men are tempted to prefer their own selfish and immediate interests to the wide and long-term interests of society in general. But since an attack on a man’s possession is an attack on something which may be essential to him, it becomes almost tantamount to an assault on the man himself; and the possessor may well be stirred to defend himself with force. The result is violence, chaos and disorder.” (at pp. 265, 266).

“In English Law possession is a good title of right against anyone who cannot show a better. A wrongful possessor has the rights of an owner with respect to all persons except earlier possessors and except the true owner himself. Many other legal systems, however, go much further than this, and treat possession as a provisional or temporary title even against the true owner himself. Even a wrongdoer, who is deprived of his possession, can recover it from any person whatever, simply on the ground of his possession. Even the true owner, who takes his own, may be forced in this way to restore it to the wrongdoer, and will not be permitted to set up his own superior title to it. He must first give up possession, and then proceed in due course of law for the recovery of the thing on the ground of his ownership. The intention of the law is that every possessor shall be entitled to retain and recover his possession, until deprived of it by a judgment according to law.” (Salmond, ibid, pp. 294-295)

“Legal remedies thus appointed for the protection of possession even against ownership are called possessory, while those available for the protection of ownership itself may be distinguished as proprietary. In the modern and medieval civil law the distinction is expressed by the contrasted terms petitorium (a proprietary suit) and possessorium (a possessory suit).” (Salmond, ibid, p.295)

The law in India, as it has developed, accords with the jurisprudential thought as propounded by Salmond. In Midnapur Zamindary Co. Ltd. Vs. Kumar Naresh Narayan Roy and Ors.  1924 PC 144, Sir John Edge summed up the Indian law by stating that in India persons are not permitted to take forcible possession; they must obtain such possession as they are entitled to through a Court.

The thought has prevailed incessantly, till date, the last and latest one in the chain of decisions being Ramesh Chand Ardawatiya Vs. Anil Panjwani  (2003) 7 SCC 350. In-between, to quote a few out of severals, in Lallu Yeshwant Singh (dead) by his legal representative Vs. Rao Jagdish Singh and others  (1968) 2 SCR 203, this Court has held that a landlord did commit trespass when he forcibly entered his own land in the possession of a tenant whose tenancy has expired. The Court turned down the submission that under the general law applicable to a lessor and a lessee there was no rule or principle which made it obligatory for the lessor to resort to Court and obtain an order for possession before he could eject the lessee. The court quoted with approval the law as stated by a Full Bench of Allahabad High Court in Yar Mohammad Vs. Lakshmi Das (AIR 1959 All. 1,4), “Law respects possession even if there is no title to support it. It will not permit any person to take the law in his own hands and to dispossess a person in actual possession without having recourse to a court. No person can be allowed to become a judge in his own cause.” In the oft- quoted case of Nair Service Society Ltd. Vs. K.C. Alexander and Ors.  (1968) 3 SCR 163, this Court held that a person in possession of land in assumed character of owner and exercising peaceably the ordinary rights of ownership has a perfectly good title against all the world but the rightful owner. When the facts disclose no title in either party, possession alone decides. The court quoted Loft’s maxim  ‘Possessio contra omnes valet praeter eur cui ius sit possessionis (He that hath possession hath right against all but him that hath the very right)’ and said, “A defendant in such a case must show in himself or his predecessor a valid legal title, or probably a possession prior to the plaintiff’s and thus be able to raise a presumption prior in time”. In M.C. Chockalingam and Ors. Vs. V. Manickavasagam and Ors.  (1974) 1 SCC 48, this Court held that the law forbids forcible dispossession, even with the best of title. In Krishna Ram Mahale (dead) by his Lrs. Vs. Mrs. Shobha Venkat Rao  (1989) 4 SCC 131, it was held that where a person is in settled possession of property, even on the assumption that he had no right to remain on the property, he cannot be dispossessed by the owner of the property except by recourse to law. In Nagar Palika, Jind Vs. Jagat Singh, Advocate  (1995) 3 SCC 426, this Court held that disputed questions of title are to be decided by due process of law, but the peaceful possession is to be protected from the trespasser without regard to the question of the origin of the possession. When the defendant fails in proving his title to the suit land the plaintiff can succeed in securing a decree for possession on the basis of his prior possession against the defendant who has dispossessed him. Such a suit will be founded on the averment of previous possession of the plaintiff and dispossession by the defendant.

It is thus clear that so far as the Indian law is concerned the person in peaceful possession is entitled to retain his possession and in order to protect such possession he may even use reasonable force to keep out a trespasser. A rightful owner who has been wrongfully dispossessed of land may retake possession if he can do so peacefully and without the use of unreasonable force. If the trespasser is in settled possession of the property belonging to the rightful owner, the rightful owner shall have to take recourse to law; he cannot take the law in his own hands and evict the trespasser or interfere with his possession. The law will come to the aid of a person in peaceful and settled possession by injuncting even a rightful owner from using force or taking law in his own hands, and also by restoring him in possession even from the rightful owner (of course subject to the law of limitation), if the latter has dispossessed the prior possessor by use of force. In the absence of proof of better title, possession or prior peaceful settled possession is itself evidence of title. Law presumes the possession to go with the title unless rebutted. The owner of any property may prevent even by using reasonable force a trespasser from an attempted trespass, when it is in the process of being committed, or is of a flimsy character, or recurring, intermittent, stray or casual in nature, or has just been committed, while the rightful owner did not have enough time to have recourse to law. In the last of he cases, the possession of the trespasser, just entered into would not be called as one acquiesced to by the true owner.

It is the settled possession or effective possession of a person without title which would entitle him to protect his possession even as against the true owner. The concept of settled possession and the right of the possessor to protect his possession against the owner has come to be settled by a catena of decisions. Illustratively, we may refer to Munshi Ram and Ors. Vs. Delhi Administration  (1968) 2 SCR 455, Puran Singh and Ors. Vs. The State of Punjab  (1975) 4 SCC 518 and Ram Rattan and Ors. Vs. State of Uttar Pradesh  (1977) 1 SCC 188. The authorities need not be multiplied. In Munshi Ram & Ors.’s case (supra), it was held that no one, including the true owner, has a right to dispossess the trespasser by force if the trespasser is in settled possession of the land and in such a case unless he is evicted in the due course of law, he is entitled to defend his possession even against the rightful owner. But merely stray or even intermittent acts of trespass do not give such a right against the true owner. The possession which a trespasser is entitled to defend against the rightful owner must be settled possession, extending over a sufficiently long period of time and acquiesced to by the true owner. A casual act of possession would not have the effect of interrupting the possession of the rightful owner. The rightful owner may re-enter and re- instate himself provided he does not use more force than is necessary. Such entry will be viewed only as resistance to an intrusion upon his possession which has never been lost. A stray act of trespass, or a possession which has not matured into settled possession, can be obstructed or removed by the true owner even by using necessary force. In Puran Singh and Ors.’s case (supra), the Court clarified that it is difficult to lay down any hard and fast rule as to when the possession of a trespasser can mature into settled possession. The ‘settled possession’ must be (i) effective, (ii) undisturbed, and (iii) to the knowledge of the owner or without any attempt at concealment by the trespasser. The phrase ‘settled possession’ does not carry any special charm or magic in it; nor is it a ritualistic formula which can be confined in a strait-jacket. An occupation of the property by a person as an agent or a servant acting at the instance of the owner will not amount to actual physical possession. The court laid down the following tests which may be adopted as a working rule for determining the attributes of ‘settled possession’ :

i) that the trespasser must be in actual physical possession of the property over a sufficiently long period;

ii) that the possession must be to the knowledge (either express or implied) of the owner or without any attempt at concealment by the trespasser and which contains an element of animus possidendi. The nature of possession of the trespasser would, however, be a matter to be decided on the facts and circumstances of each case;

iii) the process of dispossession of the true owner by the trespasser must be complete and final and must be acquiesced to by the true owner; and

iv) that one of the usual tests to determine the quality of settled possession, in the case of culturable land, would be whether or not the trespasser, after having taken possession, had grown any crop. If the crop had been grown by the trespasser, then even the true owner has no right to destroy the crop grown by the trespasser and take forcible possession.

In the cases of Munshi Ram and Ors.(supra) and Puran Singh and Ors. (supra), the Court has approved the statement of law made in Horam Vs. Rex  AIR 1949 Allahabad 564, wherein a distinction was drawn between the trespasser in the process of acquiring possession and the trespasser who had already accomplished or completed his possession wherein the true owner may be treated to have acquiesced in; while the former can be obstructed and turned out by the true owner even by using reasonable force, the latter, may be dispossessed by the true owner only by having recourse to the due process of law for re-acquiring possession over his property.

In the present case the Court has found the plaintiff as having failed in proving his title. Nevertheless, he has been found to be in settled possession of the property. Even the defendant failed in proving his title over the disputed land so as to substantiate his entitlement to evict the plaintiff. The Trial Court therefore left the question of title open and proceeded to determine the suit on the basis of possession, protecting the established possession and restraining the attempted interference therewith. The Trial Court and the High Court have rightly decided the suit. It is still open to the defendant-appellant to file a suit based on his title against the plaintiff-respondent and evict the latter on the former establishing his better right to possess the property.

The learned counsel for the appellant relied on the Division Bench decision in Sri Dasnam Naga Sanyasi and Anr. Vs. Allahabad Development Authority, Allahabad and Anr.  AIR 1995 Allahabad 418 and a Single Judge decision in Kallappa Rama Londa Vs. Shivappa Nagappa Aparaj and Ors.  AIR 1995 Karnataka 238 to submit that in the absence of declaration of title having been sought for, the suit filed by the plaintiff-respondent was not maintainable, and should have been dismissed solely on this ground. We cannot agree. Sri Dasnam Naga Sanyasi and Anr.’s case relates to the stage of grant of temporary injunction wherein, in the facts and circumstances of that case, the Division Bench of the High Court upheld the decision of the court below declining the discretionary relief of ad-interim injunction to the plaintiff on the ground that failure to claim declaration of title in the facts of that case spoke against the conduct of the plaintiff and was considered to be ‘unusual’. In Kallappa Rama Londa’s case, the learned Single Judge has upheld the maintainability of a suit merely seeking injunction, without declaration of title, and on dealing with several decided cases the learned Judge has agreed with the proposition that where the suit for declaration of title and injunction is filed and the title is not clear, the question of title will have to be kept open without denying the plaintiff’s claim for injunction in view of the fact that the plaintiff has been in possession and there is nothing to show that the plaintiff has gained possession by any unfair means just prior to the suit. That is the correct position of law. In Fakirbhai Bhagwandas and Anr. Vs. Maganlal Haribhai and Anr.  AIR 1951 Bombay 380 a Division Bench spoke through Bhagwati, J. (as his Lordship then was), and held that it is not necessary for the person claiming injunction to prove his title to the suit land. It would suffice if he proves that he was in lawful possession of the same and that his possession was invaded or threatened to be invaded by a person who has no title thereof. We respectfully agree with the view so taken. The High Court has kept the question of title open. Each of the two contending parties would be at liberty to plead all relevant facts directed towards establishing their titles, as respectively claimed, and proving the same in duly constituted legal proceedings. By way of abundant caution, we clarify that the impugned judgment shall not be taken to have decided the question of title to the suit property for or against any of the contending parties.

No fault can be found with the judgment and decree appealed against. The appeal is devoid of any merit and is dismissed.

 

 

The said judgment is challenged by the defendant, in this appeal by special leave, on the following grounds :

(a) The suit for permanent injunction without seeking declaration of title was not maintainable on the facts of the case. At all events, the High Court ought not to have recorded a finding of fact on a seriously disputed and complicated issue of title, in a suit for a mere injunction.

(b) The first appellate court held that plaintiffs had neither established their title nor their possession and their remedy was to file a suit for declaration and consequential relief. The High Court, in a second appeal, ought not to have reversed the said decision of the first appellate court, by the process of examining and recording a finding on title, even though there was no issue regarding title.

(c) An oral gift by a brother to a sister was not permissible. At all events, such an oral gift even if permissible, can be made only at the time of a partition or at the time of marriage of the sister, with a view to making a provision for her. The High Court erred in holding that the there was a valid oral gift by Damodar Rao in favour of Rukminibai.

(d) There was no plea in the plaint about the ostensible ownership of Rukminibai or about any acts of Damodar Rao which demonstrated the consent of Damodar Rao to such ostensible ownership. Nor was there any plea about due and diligent enquiries by the plaintiffs regarding title before purchase. Therefore the High Court erred in holding that the sales in favour of plaintiffs were protected by section 41 of the Transfer of Property Act, 1882.

(e) In the absence of pleadings and an issue regarding title, the defendant had no opportunity to effectively lead evidence on the question of title.

(f) The High Court erred in equating plaintiffs’ failure to produce title deeds of their vendor to defendant’s failure to produce the title deeds of his vendor. The High Court overlooked the fact that there was no dispute that defendant’s vendor Damodar Rao was the earlier owner of the suit property and it was for the plaintiffs who had set up a case that their vendor Rukminibai derived title from Damodar Rao under an oral gift, to prove the said claim.

10. On the contentions urged, the following questions arise for our consideration in this appeal:

(i) What is the scope of a suit for prohibitory injunction relating to immovable property?

(ii) Whether on the facts, plaintiffs ought to have filed a suit for declaration of title and injunction ?

(iii) Whether the High Court, in a second appeal under section 100 CPC, examine the factual question of title which was not the subject matter of any issue and based on a finding thereon, reverse the decision of the first appellate court?

(iv) What is the appropriate decision?

—————————————————————————————————————————————-

 

Anathula Sudhakar vs P. Buchi Reddy (Dead) By Lrs & Ors on 25 March, 2008
Author: R Raveendran
Bench: R V Raveendran, P Sathasivam

CASE NO.:

Appeal (civil) 6191 of 2001

PETITIONER:

Anathula Sudhakar

RESPONDENT:

P. Buchi Reddy (Dead) By LRs & Ors

DATE OF JUDGMENT: 25/03/2008

BENCH:

R. V. Raveendran & P. Sathasivam

JUDGMENT:

J U D G M E N T

(Reportable)

CIVIL APPEAL NO.6191 OF 2001

R.V. RAVEENDRAN, J.

This appeal by special leave is by the defendant in a suit for permanent injunction. Puli Chandra Reddy and Puli Buchi Reddy were the plaintiffs in the said suit. Both are now no more. The Legal Representatives of Puli Chandra Reddy are Respondents 2 to 5 and Legal Representatives of Puli Buchi Reddy are Respondent 1 (i) to (iii). The suit related to two sites bearing no. 13/776/B and 13/776/C measuring 110 sq. yards and 187 sq. yards in Matwada, Warangal town, together referred to as the ‘suit property’.

2. Plaintiffs 1 and 2 claimed to be the respective owners in possession of the said two sites having purchased them under two registered sale deeds dated 9.12.1968 (Exs.A1 and A2) from Rukminibai. The plaintiffs further claimed that the said two sites were mutated in their names in the municipal records. They alleged that on 3.5.1978, when they were digging trenches in order to commence construction, the defendant interfered with the said work. The plaintiffs, therefore, filed suit OS No.279 of 1978 in the file of Principal District Munsiff, Warangal, for a permanent injunction to restrain the defendant from interfering with their possession.

3. Defendant resisted the suit. He claimed that suit property measuring 300 sq. yards in Premises No. 13/776 was purchased by him from K. V. Damodar Rao (brother of plaintiffs’ vendor Rukminibai) under registered sale deed dated 7.11.1977 (Ex.B1); that he was put in possession of the suit property by Damodar Rao; that the suit property had been transferred to his name in the municipal records; that he applied for and obtained sanction of a plan for construction of a building thereon; and that he had also obtained a loan for such construction from the Central Government by mortgaging the said property. According to him, when he commenced construction in the suit property, the plaintiffs tried to interfere with his possession and filed a false suit claiming to be in possession.

4. The trial court framed the following issues – (i) whether the plaintiffs are in exclusive possession of the suit sites (house plots)? (ii) whether the defendant has interfered with the possession of the plaintiffs over the suit plots? (iii) whether the plaintiffs are entitled to permanent injunction; and (iv) to what relief. The plaintiffs examined themselves as PW1 and PW2. They examined their vendor Rukminibai as PW4. Puli Malla Reddy and Vadula Ramachandram examined as PW3 and PW5, were the purchasers of two adjacent sites from Rukminibai. One of them (PW3) was the cousin of plaintiffs and was also the scribe and attestor in respect of the two sale deeds in favour of plaintiffs. Plaintiffs exhibited the two sale deeds dated 9.12.1968 in their favour as Ex.A1 and A2 and municipal demand notices and tax receipts, all of the year 1978 onwards, as Ex.A3 to A11. A plan showing the sites was marked as Ex.A12. Two letters said to have written by Damodar Rao were marked as Ex.A13 and A14. The sale deed executed by Rukminibai in favour of PW3 was marked as Ex.X1 and sale agreement in favour of PW5 was marked as Ex.X2. The defendant gave evidence as DW1 and examined his vendor Damodar Rao as DW2. He exhibited the certified copy of the sale deed dated 7.11.1977 in his favour as Ex.B1, a certified copy of mortgage deed executed by him in favour of Central Government as Ex.B2, the licence and sanctioned plan for construction of a house in the suit plot as Ex.B3 and B4 and the loan sanction proceedings as Ex.B5. He also exhibited a property tax receipt dated 12.2.1978 issued to Damodar Rao (Ex.B6), water charge bill dated 20.9.1978 for house No. 13/775 and 13/776 issued to Damodar Rao (Ex.B7), and property tax receipts dated 19.2.1972, 14.10.1973, 28.3.1970 and 13.11.1968 in the name of Damodar Rao (Ex. B8 to B11).

5. There was no dispute that the site purchased by the defendant from Damodar Rao under deed dated 7.11.1977 is the same as the two sites purchased by plaintiffs from Rukminibai under sale deeds dated 9.1.1968. There is also no dispute that the suit property is a vacant plot and it was originally portion of the backyard of the property bearing nos. 13/775 and 13/776, belonging to Damodar Rao, and that he was shown as registered owner of the said properties No.13/775 and 13/776 in the municipal records.

6. The plaintiffs led evidence to the effect that Damador Rao orally gifted the backyard portion of No.13/775 and 13/776, (separated from the main building by a dividing wall) to his sister Rukminibai in the year 1961, by way of ‘Pasupu Kumkumam’ (a gift made to a daughter or sister, conferring absolute title, out of love and affection, with a view to provide for her); that Rukminibai sold three portions of the gifted site to PW3, plaintiff No.1, plaintiff No.2 in the year 1968 and they were in possession ever since 1968; and that an agreement of sale was also entered in regard to another portion with PW5 as per Ex.X2. On the other hand, defendant led evidence denying that the suit property was given to Rukminibai by way of ‘Pasupu Kumkumam’. His vendor Damodar Rao gave evidence that he was the owner of the suit property and he sold it to the defendant under deed dated 7.11.1977 and put him in possession thereof. While plaintiffs alleged that plots were mutated in their names after their purchase, defendant alleged that the suit property purchased by him was a part of plot No.13/776 which stood in the name of Damodar Rao in the municipal records. Neither party produced the order of mutation or any certificate from the municipal authorities, certifying or showing mutation to their names. They only produced tax receipts. The tax receipts produced by plaintiffs showed that they had paid taxes from 1978 onwards, that is for a period subsequent to the sale by Damodar Rao in favour of defendant. Plaintiffs did not produce any tax paid receipt to show that the property stood in the name of Rukminibai. Nor did they produce any tax receipt for the period 9.12.1968 (date of purchase by plaintiffs) to 7.11.1977 (date of purchase by defendant). The defendant produced tax receipts to show that the suit property stood in the name of his vendor Damodar Rao till the date of sale in his favour.

7. The trial court decreed the suit by judgment dated 31.12.1985. Relying on the two sale deeds in favour of plaintiffs, the tax paid receipts and the oral evidence, it held that plaintiffs were in possession of the suit property from the date of purchase and the defendant had interfered with their possession. The defendant filed an appeal challenging the judgment and decree of the trial court before the Addl. District Judge, Warangal. The first appellate court held that the defendant was in possession of the suit property and the plaintiffs had not made out, even prima facie, either title or possession over the suit property. It was of the view that in the circumstances a mere suit for injunction was not maintainable, and at least when the defendant filed his written statement denying the title of plaintiffs and setting up a clear and specific case of title in himself, the plaintiffs ought to have amended the plaint to convert the suit into one for declaration and injunction. Consequently it allowed the appeal by judgment and decree dated 9.12.1991 and dismissed the suit. Being aggrieved, the plaintiffs filed SA No.29 of 1992.

8. The High Court by its judgment dated 18.1.1999 allowed the second appeal and restored the judgment and decree of the trial court. For this purpose, the High Court examined the evidence in detail and recorded the following findings:

(i) There was an oral gift of the backyard portion (No.13/776) by way of ‘pasupu kumkumam’ by Damodar Rao in favour of his sister Rukminibai in the year 1961. As a gift of an immovable property in favour of a daughter or sister by way of ‘Pasupu Kumkuman’ could be oral, the absence of any registered document did not invalidate the gift.

(ii) Damodar Rao negotiated with plaintiffs, for sale of the two sites, on behalf of his sister Rukminibai, representing that his sister was the owner thereof and attested the sale deeds executed by his sister Rukminibai in favour of plaintiffs as a witness and identified her as the executant of the sale deeds before the Sub-Registrar. Those acts of Damodar Rao supported the claim of Rukminibai that there was a oral gift. Alternatively, even if there was no gift in favour of Rukminibai, and Damodar Rao was the owner, the aforesaid acts of Damodar Rao showed that with his implied consent, Rukminibai represented to be the ostensible owner of the suit property and transferred the same to plaintiffs for consideration. This attracted the provision of section 41 of Transfer of Property Act, 1882 and therefore the transfers in favour of plaintiffs was not voidable at the instance of Damodar Rao or his successor in interest on the ground that Rukminibai was not the owner of the suit property.

The High Court consequently held that plaintiffs had established their title in regard to the two vacant sites purchased by them and drew an inference that possession was presumed to be with them by applying the principle of possession follows title. The High Court also held that it was not necessary to plaintiffs to sue for declaration of title, as the question of title could be examined incidental to the question of possession.

9. The said judgment is challenged by the defendant, in this appeal by special leave, on the following grounds :

(a) The suit for permanent injunction without seeking declaration of title was not maintainable on the facts of the case. At all events, the High Court ought not to have recorded a finding of fact on a seriously disputed and complicated issue of title, in a suit for a mere injunction.

(b) The first appellate court held that plaintiffs had neither established their title nor their possession and their remedy was to file a suit for declaration and consequential relief. The High Court, in a second appeal, ought not to have reversed the said decision of the first appellate court, by the process of examining and recording a finding on title, even though there was no issue regarding title.

(c) An oral gift by a brother to a sister was not permissible. At all events, such an oral gift even if permissible, can be made only at the time of a partition or at the time of marriage of the sister, with a view to making a provision for her. The High Court erred in holding that the there was a valid oral gift by Damodar Rao in favour of Rukminibai.

(d) There was no plea in the plaint about the ostensible ownership of Rukminibai or about any acts of Damodar Rao which demonstrated the consent of Damodar Rao to such ostensible ownership. Nor was there any plea about due and diligent enquiries by the plaintiffs regarding title before purchase. Therefore the High Court erred in holding that the sales in favour of plaintiffs were protected by section 41 of the Transfer of Property Act, 1882.

(e) In the absence of pleadings and an issue regarding title, the defendant had no opportunity to effectively lead evidence on the question of title.

(f) The High Court erred in equating plaintiffs’ failure to produce title deeds of their vendor to defendant’s failure to produce the title deeds of his vendor. The High Court overlooked the fact that there was no dispute that defendant’s vendor Damodar Rao was the earlier owner of the suit property and it was for the plaintiffs who had set up a case that their vendor Rukminibai derived title from Damodar Rao under an oral gift, to prove the said claim.

10. On the contentions urged, the following questions arise for our consideration in this appeal:

(i) What is the scope of a suit for prohibitory injunction relating to immovable property?

(ii) Whether on the facts, plaintiffs ought to have filed a suit for declaration of title and injunction ?

(iii) Whether the High Court, in a second appeal under section 100 CPC, examine the factual question of title which was not the subject matter of any issue and based on a finding thereon, reverse the decision of the first appellate court?

(iv) What is the appropriate decision?

Re : Question (i) :

11. The general principles as to when a mere suit for permanent injunction will lie, and when it is necessary to file a suit for declaration and/or possession with injunction as a consequential relief, are well settled. We may refer to them briefly.

11.1) Where a plaintiff is in lawful or peaceful possession of a property and such possession is interfered or threatened by the defendant, a suit for an injunction simpliciter will lie. A person has a right to protect his possession against any person who does not prove a better title by seeking a prohibitory injunction. But a person in wrongful possession is not entitled to an injunction against the rightful owner.

11.2) Where the title of the plaintiff is not disputed, but he is not in possession, his remedy is to file a suit for possession and seek in addition, if necessary, an injunction. A person out of possession, cannot seek the relief of injunction simpliciter, without claiming the relief of possession.

11.3) Where the plaintiff is in possession, but his title to the property is in dispute, or under a cloud, or where the defendant asserts title thereto and there is also a threat of dispossession from defendant, the plaintiff will have to sue for declaration of title and the consequential relief of injunction. Where the title of plaintiff is under a cloud or in dispute and he is not in possession or not able to establish possession, necessarily the plaintiff will have to file a suit for declaration, possession and injunction.

12. We may however clarify that a prayer for declaration will be necessary only if the denial of title by the defendant or challenge to plaintiff’s title raises a cloud on the title of plaintiff to the property. A cloud is said to raise over a person’s title, when some apparent defect in his title to a property, or when some prima facie right of a third party over it, is made out or shown. An action for declaration, is the remedy to remove the cloud on the title to the property. On the other hand, where the plaintiff has clear title supported by documents, if a trespasser without any claim to title or an interloper without any apparent title, merely denies the plaintiff’s title, it does not amount to raising a cloud over the title of the plaintiff and it will not be necessary for the plaintiff to sue for declaration and a suit for injunction may be sufficient. Where the plaintiff, believing that defendant is only a trespasser or a wrongful claimant without title, files a mere suit for injunction, and in such a suit, the defendant discloses in his defence the details of the right or title claimed by him, which raises a serious dispute or cloud over plaintiff’s title, then there is a need for the plaintiff, to amend the plaint and convert the suit into one for declaration. Alternatively, he may withdraw the suit for bare injunction, with permission of the court to file a comprehensive suit for declaration and injunction. He may file the suit for declaration with consequential relief, even after the suit for injunction is dismissed, where the suit raised only the issue of possession and not any issue of title.

13. In a suit for permanent injunction to restrain the defendant from interfering with plaintiff’s possession, the plaintiff will have to establish that as on the date of the suit he was in lawful possession of the suit property and defendant tried to interfere or disturb such lawful possession. Where the property is a building or building with appurtenant land, there may not be much difficulty in establishing possession. The plaintiff may prove physical or lawful possession, either of himself or by him through his family members or agents or lessees/licensees. Even in respect of a land without structures, as for example an agricultural land, possession may be established with reference to the actual use and cultivation. The question of title is not in issue in such a suit, though it may arise incidentally or collaterally.

14. But what if the property is a vacant site, which is not physically possessed, used or enjoyed? In such cases the principle is that possession follows title. If two persons claim to be in possession of a vacant site, one who is able to establish title thereto will be considered to be in possession, as against the person who is not able to establish title. This means that even though a suit relating to a vacant site is for a mere injunction and the issue is one of possession, it will be necessary to examine and determine the title as a prelude for deciding the de jure possession. In such a situation, where the title is clear and simple, the court may venture a decision on the issue of title, so as to decide the question of de jure possession even though the suit is for a mere injunction. But where the issue of title involves complicated or complex questions of fact and law, or where court feels that parties had not proceeded on the basis that title was at issue, the court should not decide the issue of title in a suit for injunction. The proper course is to relegate the plaintiff to the remedy of a full-fledged suit for declaration and consequential reliefs.

15. There is some confusion as to in what circumstances the question of title will be directly and substantially in issue, and in what circumstances the question of title will be collaterally and incidentally in issue, in a suit for injunction simpliciter. In Vanagiri Sri Selliamman Ayyanar Uthirasomasundareswarar Temple vs. Rajanga Asari  AIR 1965 Mad. 355, the Madras High Court considered an appeal arising from a suit for possession and injunction. The defendant contended that the plaintiff had filed an earlier suit for injunction which was dismissed, and therefore the plaintiff was precluded from agitating the issue of title in the subsequent suit, being barred by the principle of res judicata. It was held that the earlier suit was only for an injunction (to protect the standing crop on the land) and the averments in the plaint did not give rise to any question necessitating denial of plaintiff’s title by the defendant; and as the earlier suit was concerned only with a possessory right and not title, the subsequent suit was not barred. There are several decisions taking a similar view that in a suit for injunction, the question of title does not arise or would arise only incidentally or collaterally, and therefore a subsequent suit for declaration of title would not be barred. On the other hand, in Sulochana Amma vs. Narayanan Nair  1994 (2) SCC 14, this Court observed that a finding as to title given in an earlier injunction suit, can operate as res judicata in a subsequent suit for declaration of title. This was on the premises that in some suits for injunction where a finding on possession solely depended upon a finding on the issue of title, it could be said that the issue of title directly and substantially arose for consideration; and when the same issue regarding title is put in issue, in a subsequent title suit between the parties, the decision in the earlier suit for injunction may operate as res judicata. This Court observed :

“Shri Sukumaran further contended that the remedy of injunction is an equitable relief and in equity, the doctrine of res judicata cannot be extended to a decree of a court of limited pecuniary jurisdiction. We find no force in the contention. It is settled law that in a suit for injunction when title is in issue for the purpose of granting injunction, the issue directly and substantially arises in that suit between the parties. When the same issue is put in issue in a later suit based on title between the same parties or their privies in a subsequent suit the decree in the injunction suit equally operates as res judicata.”

This was reiterated in Annaimuthu Thevar v. Alagammal  2005 (6) SCC

202.

16. This Court in Sajjadanashin Sayed Md. Vs. Musa Dadabhai Ummer  2000 (3) SCC 350, noticed the apparent conflict in the views expressed in Vanagiri and Sulochana Amma and clarified that the two decisions did not express different views, but dealt with two different situations, as explained in Corpus Juris Secundum (Vol.50, para 735, p.229):

“Where title to property is the basis of the right of possession, a decision on the question of possession is res judicata on the question of title to the extent that adjudication of title was essential to the judgment; but where the question of the right to possession was the only issue actually or necessarily involved, the judgment is not conclusive on the question of ownership or title.”

In Vanagiri, the finding on possession did not rest on a finding on title and there was no issue regarding title. The case related to an agricultural land and raising of crops and it was obviously possible to establish by evidence who was actually using and cultivating the land and it was not necessary to examine the title to find out who had deemed possession. If a finding on title was not necessary for deciding the question of possession and grant of injunction, or where there was no issue regarding title, any decision on title given incidentally and collaterally will not, operate as res judicata. On the other hand, the observation in Sulochana Amma that the finding on an issue relating to title in an earlier suit for injunction may operate as res judicata, was with reference to a situation where the question of title was directly and substantially in issue in a suit for injunction, that is, where a finding as to title was necessary for grant of an injunction and a specific issue in regard to title had been raised. It is needless to point out that a second suit would be barred, only when the facts relating to title are pleaded, when a issue is raised in regard to title, and parties lead evidence on the issue of title and the court, instead of relegating the parties to an action for declaration of title, decides upon the issue of title and that decision attains finality. This happens only in rare cases. Be that as it may. We are concerned in this case, not with a question relating to res judicata, but a question whether a finding regarding title could be recorded in a suit for injunction simpliciter, in the absence of pleadings and issue relating to title.

17. To summarize, the position in regard to suits for prohibitory injunction relating to immovable property, is as under :

(a) Where a cloud is raised over plaintiff’s title and he does not have possession, a suit for declaration and possession, with or without a consequential injunction, is the remedy. Where the plaintiff’s title is not in dispute or under a cloud, but he is out of possession, he has to sue for possession with a consequential injunction. Where there is merely an interference with plaintiff’s lawful possession or threat of dispossession, it is sufficient to sue for an injunction simpliciter.

(b) As a suit for injunction simpliciter is concerned only with possession, normally the issue of title will not be directly and substantially in issue. The prayer for injunction will be decided with reference to the finding on possession. But in cases where de jure possession has to be established on the basis of title to the property, as in the case of vacant sites, the issue of title may directly and substantially arise for consideration, as without a finding thereon, it will not be possible to decide the issue of possession.

(c) But a finding on title cannot be recorded in a suit for injunction, unless there are necessary pleadings and appropriate issue regarding title [either specific, or implied as noticed in Annaimuthu Thevar (supra)]. Where the averments regarding title are absent in a plaint and where there is no issue relating to title, the court will not investigate or examine or render a finding on a question of title, in a suit for injunction. Even where there are necessary pleadings and issue, if the matter involves complicated questions of fact and law relating to title, the court will relegate the parties to the remedy by way of comprehensive suit for declaration of title, instead of deciding the issue in a suit for mere injunction.

(d) Where there are necessary pleadings regarding title, and appropriate issue relating to title on which parties lead evidence, if the matter involved is simple and straight-forward, the court may decide upon the issue regarding title, even in a suit for injunction. But such cases, are the exception to the normal rule that question of title will not be decided in suits for injunction. But persons having clear title and possession suing for injunction, should not be driven to the costlier and more cumbersome remedy of a suit for declaration, merely because some meddler vexatiously or wrongfully makes a claim or tries to encroach upon his property. The court should use its discretion carefully to identify cases where it will enquire into title and cases where it will refer to plaintiff to a more comprehensive declaratory suit, depending upon the facts of the case.

Re : Question (ii) :

18. Rukminibai did not have any title deed to the suit property. The case of plaintiffs during arguments was that the gift made in the year 1961, being by way of ‘Pasupu Kumkumam’ in favour of a sister by a brother, could be oral and did not require a registered instrument. But the property allegedly gifted to Rukminibai was not mutated in the name of Rukminibai in the municipal records, but continued in the name of Damodar Rao even after 1961. Damodar Rao was a resident of Warangal and staying in the house adjoining the suit property. Rukminibai was a resident of Hyderabad. Therefore, as on the date of sales in favour of the plaintiffs 9.12.1968, Rukminibai had neither any title deed nor actual possession. Nor was the property mutated in her name in the municipal records. The tax paid receipts produced by the plaintiffs related to a period subsequent to the execution of the sale deeds by Rukminibai in their favour and subsequent to the sale by Damodar Rao in favour of defendant. On the other hand, the suit property was sold in favour of the defendant by Damodar Rao who was shown as registered owner in the municipal records and who even according to the plaintiffs was the original owner of the property.

19. The first appellate court found that the evidence of plaintiffs and their witnesses as to the title of plaintiffs’ vendor Rukminibai was sketchy and inconsistent. It referred to three versions as to how Rukminibai got the property. The first version (as per PW1) was that the suit property belonged to Rukminibai’s father and he had given it to his daughter Rukminibai by way of ‘Pasupu Kumkumam’. The second version (as per PW2) was that after the death of Rukminibai’s father, there was an oral partition between K. V. Damodar Rao and Rukminibai and at that partition, the suit property was allotted to Rukminibai. But both PW1 and PW2 admitted that they did not make any enquiry with Rukminibai about her title. The third version (as per PW4 – Rukminibai) was that Damodar Rao made an oral gift of the plot in her favour by way of ‘Pasupu Kumkumam’ in the year 1961. She admitted that there was no special occasion for gifting the plot to her in the year 1961, as she was married long prior to 1961.

20. The suit sites were vacant plots. Both sides admitted that Damodar Rao was the original owner and that entire property stood in his name. The defendant claims title through Damodar Rao. The plaintiffs claim title through Rukminibai who neither has any deed of title nor any document in support of title or possession. Admittedly, there was no mutation in her name. This means that plaintiffs claim title through someone who claimed to be owner in pursuance of an oral gift in the year 1961 without the property being mutated in her name, whereas the defendant claims title from the person who was admittedly the original owner who was registered as owner in the revenue records. Necessarily, therefore, prima facie it has to be held that defendant had made out possession following title.

21. The plaintiffs and their witnesses gave evidence to the effect that Damodar Rao represented that his sister Rukminibai was the owner of the plot and negotiated for sale of the several portions thereof in favour of plaintiffs and PW3, and that Damodar Rao had attested the sale deeds in their favour and identified his sister as the vendor  executant before the Sub-Registrar, at the time of registration of the sale deeds. It is no doubt true that if that was the position, it is possible for them to contend that having regard to section 41 of Transfer of Property Act, when the ostensible owner Rukminibai sold the property with the implied consent of Damodar Rao, the defendant as a transferee from Damodar Rao could not contend that the sales were not valid. They also alleged that defendant was a close relative of Damodar Rao and the sale in favour of defendant was only nominal, intended to defeat their title. But Damodar Rao in his evidence denied having made the oral gift or having attested the sale deeds in favour of plaintiffs. He also denied having identified his sister at the time of registration of the sale deeds. Whether Rukminibai’s evidence and other plaintiffs’ witnesses should be believed or whether evidence of Damodar Rao should be believed on the question of title, can be examined only when there are necessary pleadings and an issue regarding title. Further, where title of plaintiffs is disputed and claim for possession is purely based on title, and the plaintiffs have to rely on various principles of law relating to ostensible ownership and section 41 of TP Act, validity of a oral gift by way of ‘pasupu kumkum’ under Hindu Law, estoppel and acquiescence, to put forth a case of title, such complicated questions could properly be examined only in a title suit, that is a suit for declaration and consequential reliefs, and not in a suit for an injunction simpliciter.

Re : Questions (iii) and (iv)

 

22. The High Court formulated the following as substantial questions of law:

“(i) Whether the plaintiffs’ suit for permanent injunction without seeking declaration of title is maintainable under law?

(ii) Whether the acts and deeds of Damodar Rao (DW-2) made the plaintiffs to believe that Rukminibai is the ostensible owner of the suit property and thus made them to purchase the suit property for valid consideration and, therefore, the provisions under Section 41 of the Transfer of Property Act are attracted and as such DW-2 could not pass on a better title to the defendant under Ex.B-1?

(iii) Whether the alleged oral gift of the suit property in favour of Rukminibai by DW2 towards pasupukumkum is legal, valid and binding on DW2 though effected in contravention of the provisions under Section 123 of the Transfer of Property Act?”

Having regard to the pleadings and issues, only the first question formulated by the High Court can be said to arise for its consideration in the second appeal. The second and third questions did not arise at all, as we will presently demonstrate.

23. The second question of law formulated by the High Court is a mixed question of fact and law, that is whether the factual ingredients necessary to claim the benefit of section 41 of the Transfer of Property Act were made out by plaintiffs. To attract the benefit of section 41 of TP Act, the plaintiffs had to specifically plead the averments necessary to make out a case under section 41 of the T.P. Act and claim the benefit or protection under that section. The averments to be pleaded were :

(a) that Rukminibai was the ostensible owner of the property with the express or implied consent of Damodar Rao;

(b) that the plaintiffs after taking reasonable care to ascertain that the transferor or Rukminibai had the power to make the transfer, had acted in good faith in purchasing the sites for valid consideration; and

(c) that therefore, the transfer in favour of plaintiffs by Rukminibai was not voidable at the instance of Damodar Rao or any one claiming through him.

These pleas were not made in the plaint. When these were not pleaded, the question of defendant denying or traversing them did not arise. In the absence of any pleadings and issue, it is ununderstandable how a question of law relating to section 41 of TP Act could be formulated by the High Court.

24. The third question of law formulated by the High Court, is also a mixed question of fact and law  firstly whether there was an oral gift and secondly whether the alleged oral gift was valid. Here again, there was no averment in the plaint in respect of any gift, oral or otherwise, by Damodar Rao in favour of Rukminibai or about its validity. Consequently there was no opportunity to the defendant to deny the oral gift in his written statement. There was no issue on this aspect also. Therefore, this question, which could not have been considered in the suit, could not also have been considered in the second appeal.

25. The High Court, in the absence of pleadings and issues, formulated in a second appeal arising from a suit for bare injunction, questions of law unrelated to the pleadings and issues, presumably because some evidence was led and some arguments were advanced on those aspects. The only averment in the plaint that plaintiffs were the owners of the suit property having purchased the same under sale deeds dated 9.12.1968, did not enable the court, much less a High Court in second appeal, to hold a roving enquiry into an oral gift and its validity or validation of ostensible title under section 41 of TP Act. No amount of evidence or arguments can be looked into or considered in the absence of pleadings and issues, is a proposition that is too well settled.

26. The High Court while reversing the decision of the first appellate court, examined various aspects relating to title and recorded findings relating to title. It held that gifting a property to a daughter or sister by way of ‘Pasupu Kumkumam”, could be done orally and did not require a registered instrument. Even though there was no independence evidence of oral gift except the assertion to Rukminibai (which was denied by Damodar Rao), the High Court, held that there was an oral gift in her favour. It also accepted the evidence of PW3 and PW5 and plaintiffs, that Damodar Rao negotiated for the sale of the plots representing that they belonged to his sister Rukminibai and that he attested the sale deeds as a witness and identified the Rukminibai as the executant before the Sub-Registrar and therefore, section 41 of TP Act came to the aid of plaintiffs and Damodar Rao was estopped from denying the title of his sister. The High Court in a second appeal arising from a suit for an injunction, could not have recorded such findings, in the absence of pleadings and issue regarding title.

27. We are therefore of the view that the High Court exceeded its jurisdiction under section 100 CPC, firstly in re-examining questions of fact, secondly by going into the questions which were not pleaded and which were not the subject matter of any issue, thirdly by formulating questions of law which did not arise in the second appeal, and lastly, by interfering with the well reasoned judgment of the first appellate court which held that the plaintiffs ought to have filed a suit for declaration.

28. We are conscious of the fact that the suit was filed in the year 1978 and driving the plaintiffs to a fresh round of litigation after three decades would cause hardship to them. But the scope of civil cases are circumscribed by the limitations placed by the rules of pleadings, nature of relief claimed and the court fee paid. The predicament of plaintiffs, was brought upon themselves, by failing to convert the suit to one for declaration even when the written statement was filed, and by not seeking amendment of issues to include an issue on the question of title. In the absence of a prayer of declaration of title and an issue regarding title, let alone the pleadings required for a declaration of title, the parties cannot be said to have an opportunity to have a full-fledged adjudication regarding title.

29. We, therefore, allow this appeal, set aside the judgment of the High Court and dismiss the suit. Nothing stated herein or by the courts below shall be construed as expression of any opinion regarding title, in any future suit for declaration and consequential reliefs that may be filed by the Appellants, in accordance with law. Parties to bear their respective costs.

 

Production of documents in Appeal-order 41 rule 27 of CPC.

 

 

27 additional evidence in Appellate Court.- (1) The parties to an appeal shall not be entitled to produce additional evidence, whether oral or documentary, in the Appellate Court. But if—

(a) the court from whose decree the appeal is preferred has refused to admit evidence which ought to have been admitted, or

(aa) the party seeking to produce additional evidence, establishes that notwithstanding the exercise of due diligence, such evidence was not within his knowledge or could not, after the exercise of due diligence, be produced by him at the time when the decree appealed against was passed, or

(b) the Appellate Court requires any document to be produced or any witness to be examined to enable it to pronounce judgment, or for any other substantial cause, the Appellate Court may allow such evidence or document to be produced, or witness to be exam med.

(2) Whenever additional evidence is allowed to the produced, by an Appellate Court, the court shall record the reason for its admission.

 

 

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 1418 OF 2004

Bengai Mandal @ Begai Mandal …. Appellant Versus

State of Bihar …. Respondent

JUDGMENT

Dr. Mukundakam Sharma, J.

1. By this appeal, the present appellant seeks to challenge the judgment and order dated 20.05.2004 passed by the Patna High Court, whereby the High Court upheld the conviction and sentence passed against the appellant by the trial Court. The trial Court had by its judgment dated 24.07.2000 and order dated 25.07.2000 convicted the appellant and sentenced him to undergo imprisonment for life under Section 302 read with Section 34, RI for a period of seven years
under Section 326 read with Section 34, RI for a period of three years under Section 452 and RI for a period of three years under Section 324 IPC.

2. The facts necessary for the disposal of the present appeal and as presented by the prosecution may be set out at this stage. On 14.07.1996 at 6 a.m., Shrikant Mahto, brother-in-law of the deceased (PW-7) gave a fard-e-bayan to the Assistant Sub-Inspector of Police wherein he stated that on 13.07.1996 after having his supper, he had gone to sleep at his darwaza (open space in front of the house). Pramila Devi, the deceased was sleeping inside the house with her son Sonu Mahto. At about 2.30 in the night, PW-7 woke up on hearing the cries of the deceased and rushed inside to find out what was happening. PW-7 saw that the deceased was lying on the ground and was tossing about on the ground. PW-7 picked up the deceased and found that the entire body and clothes of the deceased had burnt. PW-7 further noticed that blisters and rashes were erupting all over the body of the deceased and that she was writhing in pain.

 

3. The deceased told PW-7 that the appellant herein and one Mahendra Mahto (accused no. 1) had entered into the house carrying a vessel in his hand and had thrown its contents over her as a result of which her entire body and clothes were burnt. The deceased further informed PW-7 that the appellant and the accused no.1 would try to stop the deceased on her visit to market or work and ask for sexual favour. The deceased further told that she had turned down their advances and for that reason they had thrown acid over her to burn her body with the intent to kill her.

4. On hearing the commotion, some villagers assembled there and went out to look for the appellant and the accused no.1, who were seen fleeing towards the east. The deceased was taken to the hospital. At the hospital also, the deceased stated that acid was thrown over her by the appellant and the accused no. 1. After treatment at the District hospital at Purnea for a few days, the deceased was sent back to her home where she finally died on 10.08.1996.

 

5. On the basis of the aforesaid fard-e-bayan, an F.I.R. under Sections 302, 326, 448, 323 read with Section 34 IPC was registered on the same day at 1 p.m.

6. After completion of the investigation, the police submitted a charge-sheet against the appellant and accused no.1. On the basis of the aforesaid charge sheet, the trial Court framed charges under the Section 302 read with Section 34, Section 326 read with Section 34, Section 452 and Section 324 IPC against the appellant and the accused no. 1 to which they pleaded not guilty and claimed to be tried.

7. At the trial, the prosecution examined 11 witnesses and exhibited several documents in support of its case. On conclusion of the trial, the trial Court by its judgment dated 24.07.2000 and order dated 25.07.2000 convicted the appellant and accused no. 1 to undergo imprisonment for life under Section 302 read with Section 34, RI for a period of seven years under Section 326 read with Section 34, RI for a period of three years under Section 452 and RI for a period of three years
 under Section 324 IPC. All the sentences were directed to run concurrently.

8. Aggrieved by the decision of the trial Court, the appellant herein and the accused no. 1 filed two separate appeals before the Patna High Court. By a common judgment and order dated 20.05.2004, the Patna High Court upheld the decision of the trial Court and dismissed the said appeals.

9. The counsel appearing on behalf of the appellant strongly contended before us that the High Court as well as the trial Court had erred in convicting the appellant under Section 302 IPC and if at all a case existed against the appellant, it was under Section 304 part II IPC, for it was accused no. 1 who had carried the vessel containing the acid and actually poured the acid on the deceased causing her death. The counsel further submitted that there was no overt act on the part of the appellant in the commission of the said offence.

 

10.The counsel appearing on behalf of the respondent- State, on the other hand, supported the decisions of the courts below.

11.Before dwelling into the evidence on record and addressing the rival contentions made by the parties, we wish to reiterate the precise nature, purpose and scope of Section 34 IPC.

12. In Girija Shankar v. State of U.P. (2004) 3 SCC 793, this Court, while bringing out the purpose and nature of Section 34 IPC observed in para 9, as follows: "9. Section 34 has been enacted on the principle of joint liability in the doing of a criminal act. The section is only a rule of evidence and does not create a substantive offence. The distinctive feature of the section is the element of participation in action. The liability of one person for an offence committed by another in the course of criminal act perpetrated by several persons arises under Section 34 if such criminal act is done in furtherance of a common intention of the persons who join in committing the crime. Direct proof of common intention is seldom available and, therefore, such intention can only be inferred from the circumstances appearing from the proved facts of the case and the proved circumstances. In order to bring home the charge of common intention, the prosecution has to establish by evidence, whether direct or circumstantial, that there was plan or meeting of minds of all the accused persons to commit the offence for which they are charged with the aid of Section 34, be it pre-arranged or on the spur of the moment; but it must necessarily be before the commission of the crime. The true concept of the section is that if two or more persons

 

intentionally do an act jointly, the position in law is just the same as if each of them has done it individually by himself. As observed in Ashok Kumar v. State of Punjab the existence of a common intention amongst the participants in a crime is the essential element for application of this section. It is not necessary that the acts of the several persons charged with commission of an offence jointly must be the same or identically similar. The acts may be different in character, but must have been actuated by one and the same common intention in order to attract the provision."

13. In Vaijayanti v. State of Maharashtra (2005) 13 SCC 134, this Court, observed in para 9, as follows: "9. Section 34 of the Indian Penal Code envisages that "when a criminal act is done by several persons in furtherance of the common intention of, each of such persons is liable for that act, in the same manner as if it were done by him alone". The underlying principle behind the said provision is joint liability of persons in doing of a criminal act which must have found in the existence of common intention of enmity in the acts in committing the criminal act in furtherance thereof. The law in this behalf is no longer res integra. There need not be a positive overt act on the part of the person concerned. Even an omission on his part to do something may attract the said provision. But it is beyond any cavil of doubt that the question must be answered having regard to the fact situation obtaining in each case." (emphasis supplied)

14. Thus, the position with regard to Section 34 IPC is crystal clear. The existence of common intention is a question of fact. Since intention is a state of mind, it is therefore very difficult, if not impossible, to get or procure direct proof of
common intention. Therefore, courts, in most cases, have to infer the intention from the act(s) or conduct of the accused or other relevant circumstances of the case. However, an inference as to the common intention shall not be readily drawn; the criminal liability can arise only when such inference can be drawn with a certain degree of assurance.

15. With the aforesaid legal position in mind, we have considered the submissions made by the counsel for the parties and also scrutinized the evidence available on record before us. On a perusal of the evidence before us, we find that all the prosecution witnesses except the official witnesses namely, PW-8, PW-10 and PW-11 disowned the prosecution case (some completely and some to the extent of the identification of the accused persons). However, what is clearly established from the evidence of prosecution witnesses is that acid was thrown over the deceased on the night intervening 13.07.1996 and 14.07.1996 which caused blisters and rashes on her body and later led to her death. This fact finds corroboration in the dying declaration given by the deceased to PW-11 wherein the deceased has categorically stated that on the night intervening 13.07.1996
and 14.07.1996, accused no.1 and the appellant had entered into her house and accused no.1 poured a watery substance over her from the pot which the accused no.1 was carrying in his hand. The dying declaration given by the deceased comes as an important piece of evidence as it throws light on the role played by each of the accused persons at the time of the incident. After a careful reading of the dying declaration, what comes out to the fore is that it was accused no. 1 who had carried (in his hand) the vessel containing the acid and who had actually thrown its contents i.e. the acid on the deceased. The deceased, in her dying declaration, had attributed the acts of carrying the vessel containing the acid and throwing the contents thereof on her only to accused no. 1 whereas she accused both the accused no.1 and the appellant of demanding illicit body relations with her as also entering into her house. From the dying declaration as on record before us, it is clearly established that the appellant was present at the time and scene of the offence. However, what needs to be ascertained is whether the appellant herein shared an intention common with the accused no.1 so that he may be convicted under Section 302 IPC by invoking the
aid of Section 34 IPC.

16. To find answer to this question, we need to revert back to the dying declaration of the deceased. In her dying declaration, the deceased has imputed the acts of entry into her house and physical presence at the time of the incident to the appellant without anything more. No other overt act save as mentioned above has been imputed to the appellant by the deceased. It has also not come in evidence before us that the appellant tried to gag her mouth or overpower the deceased in any other manner so as to facilitate the pouring of acid on her by the accused no.1. Had the appellant shared an intention common with the accused no.1 to kill the deceased by throwing acid on her, it would have been manifest in his conduct which would certainly have been something more than him being just a mute spectator to the whole incident.

17. Thus, in absence of any active role played by the appellant or overt act being done by the appellant, it cannot be said with certainty that the appellant had accompanied the accused no.1 to the house of the deceased with a common intention to murder the deceased. In view thereof,
the conviction of the appellant under Section 302 read with Section 34 IPC cannot be sustained.

18. However, keeping in mind the facts that the deceased had turned down the sexual advances made by the appellant and that he had accompanied the accused no.1 who was carrying a vessel containing acid in his hand at the dead of the night and in an unearthly hour, it can be said with certainty that the appellant had the intention to inflict bodily harm on the deceased otherwise the appellant would not have accompanied the accused no.1 to the house of the deceased. Since the appellant was present at the scene of occurrence and simply watched the accused no.1 throwing acid on the deceased without preventing the accused no.1 from doing so clearly establishes that the appellant had intended to cause injury to and also disfigurement of the deceased and as such is liable to be punished under Section 326 IPC. Also since the appellant could be said to be possessing knowledge that the throwing of acid is likely to cause death of the deceased, a case under Section 304 part II is also made out. The appellant has already served rigorous imprisonment for a period of seven years. Considering the
facts that the death ensued after twenty six days of the incident as a result of septicemia and not as a consequence of burn injuries, we are of the considered view that the period already undergone by the appellant would be sufficient to meet the ends of justice. We, therefore, partly allow the appeal to the aforesaid extent and direct that the appellant be released forthwith if not wanted in connection with any other case.

……………………………J.

[V.S. Sirpurkar]

………………………..J.

[Dr. Mukundakam Sharma]

January 11, 2010

New Delhi.