NEC CORPORATION INDIA PRIVATE LIMITED (ERSTWHILE NEC TECHNOLOGIES INDIA PRIVATE LIMITED) vs M/S PLUS 91 SECURITY SOLUTIONS & ORS.
$~14
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Pronounced on: 04.03.2024
+ CS (COMM) No. 656/2022
NEC CORPORATION INDIA PRIVATE LIMITED (ERSTWHILE NEC TECHNOLOGIES INDIA PRIVATE LIMITED) …..Plaintiff
Through: Mr. Ramesh Singh, Sr. Adv. along with Mr. Arjun Pal and Ms. Chandni Ghatak, Advocates
versus
M/S PLUS 91 SECURITY SOLUTIONS & ORS. …..Defendants
Through: Ms. Kaveri Rawal and Mr. Arindam Ghose, Advocates
CORAM:
HON’BLE MR. JUSTICE SACHIN DATTA
JUDGMENT
I.A. 3198/2023
1. By way of the present application under Order XXXVII Rule 3 (5) of Civil Procedure Code (CPC), the defendant no.1 seeks leave to defend the present suit of the plaintiff, filed under Order XXXVII of the CPC.
2. By way of the present suit, the plaintiff seeks recovery of Rs.4,21,39,402.95/- along with pre-suit interest amounting to Rs.2,04,08,260/-, and also pendente lite and post-decretal interest, till date of realization of the principal amount from the defendants. The said amount/s have been claimed on account of equipments that is stated to have been undisputedly supplied by the plaintiff to the defendant no.1 company.
3. It is averred in the suit that the defendant no.1 had been awarded a project by Indian Oil Corporation Limited (hereinafter referred to as the IOCL project) for installation of equipment at 3 project locations at Jalandhar, Jammu and Sangrur and the defendant no.1 procured the requisite equipment for the IOCL project from the plaintiff by issuing three purchase orders dated 17.05.2019 (hereinafter referred to as the POs dated 17.05.2019) bearing numbers Plus91SS/PO-02/IOCL/2019-2020, Plus91SS/PO-04/IOCL/2019-2020 and Plus91SS/PO-03/IOCL/2019-20 for Rs.19,393,857/-, Rs.10,179,645/- and Rs.12,565,946/- respectively, totalling an amount of Rs.4,21,39,448/-.
4. In terms of the three POs dated 17.05.2019, the plaintiff is stated to have supplied equipment at all three sites specified in the said purchase orders i.e., at Jalandhar, Jammu and Sangrur. The defendant no. 1 is also stated to have acknowledged the receipt of the said equipment by way of various emails from 31.07.2019 24.09.2019.
5. Relying upon the aforesaid POs dated 17.05.2019, it is submitted on behalf of the plaintiff that the payment for the delivery of the equipment at the requisite locations was to be made by the defendant no.1 by way of post-dated cheques (hereinafter referred to as PDCs) no later than 120 days from the date of delivery.
6. The plaintiff is stated to have raised fifteen invoices for the equipment supplied to the defendant no. 1 in terms of the three POs dated 17.05.2019. The said invoices were for a total amount of Rs. 4,21,39,402.95/-.
7. As per the payment terms set out in the aforesaid invoices, the due dates of payment towards the invoices raised, were on 28.11.2019, 21.12.2019, 28.12.2019, 15.01.2020 and 22.01.2020.
8. Pursuant to the said invoices being raised by the plaintiff and in accordance with the terms of payment set out in the POs dated 17.05.2019, the defendant no.1 is stated to have issued one PDC dated 28.11.2019, one PDC dated 21.12.2019, one PDC dated 28.12.2019, one dated PDC dated 16.01.2020, and two PDCs dated 22.01.2020 (totalling INR 4,21,39,448/-) to the plaintiff.
9. Prior to the date for encashment of the first PDC, i.e., PDC dated 28.11.2019, the defendant no. 1 is stated to have sought an extension for payment of the invoices. Such request of defendant no.1 is stated to have been rejected by the plaintiff in view of the payment terms agreed between the parties.
10. It is averred by the plaintiff that the defendant no.1 failed to make payment towards the invoices raised by the plaintiff and sought to justify the said failure / denial to pay the plaintiff on account of certain dues that were allegedly payable by the plaintiff to the defendant no.1 under separate agreements which were executed between the plaintiff and defendant no.1 prior to the IOCL project.
11. It is the plaintiffs case that the equipment was supplied to the defendant no.1 in terms of the POs dated 17.05.2019 executed in favour of the plaintiff by defendant no.1, and payment should be made by the defendant no.1 in terms thereof. In this regard, it is submitted that the POs dated 17.05.2019 form a separate contract between the plaintiff and defendant no.1 and have no connection with prior projects executed by the plaintiff with the defendant no.1.
12. Vide email dated 27.11.2019, the defendant no.1 is stated to have requested the plaintiff for an extension for payment of dues with respect to the IOCL project, however, no such extension was granted by the plaintiff.
13. Vide email dated 22.11.2019, the defendant no.1 informed the plaintiff that the defendant no.1 shall not release any payment to the plaintiff till the following issues stood clarified: (i) Release of PO to Plus 91of value Rupees 84 crores for the project Design, Development, Testing, Implementation and O &M E Boarding – Biometric Boarding Systems (BBS) project of Airport Authority of India (ii) Further PO & payments for GMDA project (iii) Roadmap of Muzaffarpur Smart City Project.
14. Vide email dated 25.11.2019, the plaintiff responded to the email dated 22.11.2019 of the defendant no.1 and stated that the projects mentioned in the email dated 22.11.2019 of the defendant no.1 had no connection with the IOCL project. It was reiterated by the plaintiff that in terms of the POs with respect to the IOCL project, the plaintiff had delivered the materials at site, the materials had been duly received by the defendant no.1 and the PDCs in terms of the POs were also available with the plaintiff.
15. Vide email dated 25.11.2019, the defendant no.1 is stated to have responded to the plaintiffs email dated 25.11.2019, stating that the projects referred to in the email dated 22.11.2019 of the defendant no.1 were all related. Thereafter, vide email dated 25.11.2019 (at 12:38 PM), the plaintiff responded to the aforesaid email of the defendant no.1 and again reiterated that the delivery with respect to the IOCL project was completed and it was requested that the payment be cleared as per the stipulated due date.
16. An email dated 27.11.2019 is stated to have been sent to the plaintiff by the defendant no.1, wherein, with respect to the IOCL project, it was again requested that an extension may be granted to defendant no.1 for payment of dues.
17. On the same date, i.e., 27.11.2019, the plaintiff is stated to have responded to aforesaid email of the defendant no.1, inter alia, stating that there was no agreement with respect to any extension being granted for payment of dues with respect to the IOCL project and it was reiterated by the plaintiff that the dues under the IOCL project be cleared as per due date.
18. Thereafter, on 29.11.2019, the defendant no.1 is stated to have sent another email to the plaintiff, in response to the plaintiffs email dated 27.11.2019, whereby, the defendant no.1 requested that 45 days grace period be granted to the defendant no.1 for making of the payments in respect of the IOCL project. In the aforesaid email, the request was made on the premise that inter-se liabilities under contracts would balance out the liability towards the plaintiff in respect of the contract in question.
19. On 29.11.2019, the plaintiff presented the first PDC dated 28.11.2019 for encashment, however, the plaintiff was informed by its bank that the cheque was returned unrealized on account of the payment being stopped by the drawer, i.e. defendant no. 1.
20. Similarly, on 29.01.2020, the plaintiff is stated to have again presented the PDC dated 28.11.2019 as well as the other five PDCs for encashment, however, for each of the cheques, the plaintiff was informed by the bank that the cheque was returned unrealized on account of the payment being stopped by the defendant no.1.
21. In the legal notice dated 14.05.2020 issued on behalf of defendant no.1 to the plaintiff, the defendant no.1 is stated to have admitted that the plaintiff had supplied equipment amounting to a total of Rs. 4,21,39,451/- to the defendant no. 1. The defendants are also stated to have acknowledged the receipt of equipment at all three sites of IOCL via several emails, however, it is submitted on behalf of the plaintiff that the defendant no. 1 has sought to justify the breach of its payment obligations under the POs dated 17.05.2019 by relying upon some extraneous issues in respect of certain other projects, which are in no way related to the IOCL Project or the POs dated 17.05.2019.
22. It is averred in the plaint that the defendant no. 1s reliance on alleged issues relating to other unrelated projects to deny the plaintiff the payment with respect to POs dated 17.05.2019 is wrong, illegal and misconceived inasmuch as these other projects were wholly distinct and different from the IOCL Project for which the aforesaid POs dated 17.05.2019 were issued.
23. The present application seeking leave to defend the present suit has been filed on behalf of the defendant no.1 seeking that the defendants be granted an unconditional leave to defend the present suit.
24. The defendants have averred that prior to the IOCL project, the plaintiff and the defendant no.1 were jointly pursuing various other projects and two such projects were for Gurgaon Metropolitan Development Authority (hereinafter referred to as the GMDA Project) and for the Airports Authority of India (hereinafter referred to as the AAI Project).
25. A consortium agreement dated 27.11.2018 is stated to have been entered by the defendant no.1, the plaintiff and one M/s Niveshan Technologies India Pvt. The said consortium comprising of the plaintiff, the defendant no.1 and M/s Niveshan Technologies is stated to have executed the GMDA Project, and as per the terms and conditions of the consortium agreement and the terms and conditions stipulated by the GMDA for the aforesaid project, the plaintiff herein was supposed to issue POs to the tune of 20% of the contract price of the GMDA project, amounting to around Rs. 12,82,31,062/- out of which the plaintiff only issued purchase orders of Rs. 4,23,89,658.02/- and is yet to issue POs with respect to the remaining amount. Such delay on part of the plaintiff in issuing POs in the GMDA project is stated to have caused delay in the completion of the GMDA project.
26. Similarly, it is claimed by the defendant no.1 that the plaintiff and defendant no.1 were also parties to a Memorandum of Understanding (hereinafter referred to as MOU) dated 16.05.2019 for the execution of the AAI project, and the plaintiff had assured the defendant no.1 that the defendant no.1 would be given purchase orders in terms of the said MOU. The plaintiff is stated to have failed to meet its obligations under the said MOU, due to which the defendant no.1 had initiated arbitration proceedings against the plaintiff, whereby the arbitral tribunal is stated to have awarded damages to the tune of Rs. 8,43,07,904/- in favour of the defendant no.1 and against the plaintiff herein.
27. The cheques which were issued by the defendant no.1 in favour of the plaintiff are stated to have been issued on the assurance and commitment of the plaintiff to release further purchase orders on account of other projects such as the GMDA Project and the AAI Project.
28. It is averred by the defendant no.1 that vide emails dated 21.11.2019, 22.11.2019, 25.11.2019, 27.11.2019 and 29.11.2019, the defendant no.1 had requested the plaintiff that a holistic settlement be arrived at between the plaintiff and defendant no.1, considering that the alleged liability of the defendant No. 1 was eclipsed in view of the liability of the plaintiff towards the defendant no.1 in respect of the GMDA project and the AAI project.
29. It is averred by the defendant No. 1 that vide email dated 31.03.2020 of the plaintiff, the plaintiff had acknowledged that amounts were due from both sides and may be adjusted against one another.
30. The defendant no.1 claims that there are various triable issues that require consideration of this court in the present suit and therefore the defendants should be granted an unconditional leave to defend the present suit.
31. As per the defendants, the following issues form triable issues that would entitle the defendants to defend the present suit: (i) whether there is any admission on part of the defendants as alleged by the plaintiff that the defendant are liable to pay an amount of Rs.4,21,39,402.95?; (ii) whether the plaintiff is entitled to interest and if yes, then at what rate? and (iii) whether the defendant handed over the PDCs to the plaintiff as security cheques on the assurance and commitment of the plaintiff to release further purchase orders, which were already due on account of other projects?;
32. It is submitted that the defence presented by the defendants is neither sham nor moonshine, and therefore, the defendants must be granted leave to defend the present suit. Relying upon the judgment of the Supreme Court in IDBI Trusteeship Services Ltd. v. Hubtown Ltd.1, it is submitted that the defendants need to present a bona fide and reasonable defence and not a good defence for the purpose of being granted leave to defend.
33. The defendants have sought to rely upon the judgment of the Supreme Court in BL Kashyap and Sons v JMS Steel and Power2 to submit that grant of leave to defend is the rule and denial is an exception. It is submitted that leave to defend is not to be granted only in cases where defendant has no defence and where there is no semblance of any triable issue. It is further submitted that the defendants have a good case on merits and there are several triable issues, which cannot be tried in a summary manner, as contemplated in Order XXXVII of the CPC.
34. The counsel for the defendants has further placed reliance upon the judgment of this Court in Smt Neelam Batra v. Shri V Ramchandra Rao3 to submit that if the defendants raise triable issues indicating that they have a fair or reasonable defence, although not a positively good defence, the plaintiff is not entitled to a summary judgment, and the defendants would ordinarily be entitled to unconditional leave to defend.
35. The above contentions of the defendants have been opposed by the learned senior counsel appearing on behalf of the plaintiff on the grounds that the present suit satisfies the requirements of Order XXXVII of CPC as the same is based on a written contract between the parties, comprising of POs, invoices and PDCs and that the defence that is sought to be raised by the defendants by way of the present application is wholly untenable and moonshine.
36. The learned senior counsel for the plaintiff has also relied upon the judgment of the Supreme Court in B.L. Kashyap (supra) to state that POs constitute a written contract under Order XXXVII Rule 1 (2) (b) (i) of the CPC. Reliance has also been placed on M/s Lohmann Rausher Gmbh v. M/s Medisphere Marketing Pvt. Ltd.4 to state that invoices also constitute a written contract under Order XXXVII Rule 1 (2) (b) (i) of CPC. Further, the learned senior counsel for the plaintiff has relied upon the judgment of this court in IFCI Factors Ltd. v. Maven Industries Ltd. & Ors.5 to state that cheques also constitute a written contract under Order XXXVII Rule 1 (2) (b) (i) of CPC.
37. The learned senior counsel for the plaintiff submits that the defendants liability is not eclipsed by their purported outstanding claims against the plaintiff in relation to the GMDA project or the AAI project. It is submitted that counter claims arising from other projects / under other contracts would not amount to a valid defence in summary proceedings. In this regard, the learned senior counsel for the plaintiff has sought to rely upon the judgments of this Court in Punjab and Sind Bank v. S.K. Tulshan6, Deutsche Ranco Gmbh v. Shri Mohan Murti7 and COFEX Exports v. Canara Bank8
38. It is submitted on behalf of the plaintiff that claims arising from the GMDA project can neither constitute a statutory set-off under Order VIII Rule 6 of CPC, nor an equitable set-off. In this regard, the plaintiff has relied upon the judgment of the High Court of Hyderabad in Narsing Rao Ramkrishnayya v. Veerayya Rajanna and others9 and the judgment of the Supreme Court in Union of India v. Karam Chand Thapar10.
39. Further, the learned senior counsel for the plaintiff has relied upon the judgment in V.K. Enterprises v. Shiva Steels11 to contend that cheques are ordinarily issued for liquidation of admitted dues and mere denial as to their issuance as security (and not for presentation) is insufficient.
40. According to the plaintiff, the GMDA project is stated to have been governed by a consortium agreement dated 27.11.2018 which contains an arbitration clause, and therefore, it is submitted that claims arising out of the GMDA project cannot be raised in the present suit.
41. Similarly, it is submitted that defendants liability against the plaintiff would not be eclipsed by the claims of the defendants in the AAI project as the AAI project is governed by a Memorandum of Understanding dated 16.05.2019, which also contains an arbitration clause. It is further submitted that the defendant no.1 has already referred the disputes with respect to the AAI project to arbitration and therefore, such claims cannot be re-agitated in the present summary suit proceedings. It is further submitted that the claims of the defendant no.1 arising under the AAI project cannot be set-off against the claims of the plaintiff in the present suit nor can they be used as a defence in the form of a counter claim in the present proceedings.
42. It is submitted on behalf of the plaintiff that the cheques issued by the defendant no.1 in favour of the plaintiff were not issued by the defendant no.1 on the assurance and commitment of the plaintiff to release further POs on account of other projects, as claimed by the defendant no.1, but the said PDCs were issued as a necessary pre-condition / stipulation forming part of the POs dated 17.05.2019.
ANALYSIS AND CONCLUSION
43. A perusal of the record shows that three purchase orders dated 17.05.2019 amounting to Rs.1,93,93,857/- (Purchase Order No. Plus91SS/PO-02/IOCL/2019-20), Rs.1,01,79,645/- (Purchase Order No. Plus91SS/PO-04/IOCL/2019-20) and Rs.1,25,65,946/- (Purchase Order No. Plus91SS/PO-03/IOCL/2019-20) (totalling to Rs.4,21,39,448/-) were issued by the defendant no.1 in favour of the plaintiff.
44. The three POs dated 17.05.2019 issued by the defendant no.1 company in favour of the plaintiff contain similar terms; one of the three said POs has been reproduced hereinbelow:
45. The said purchase orders contain the following terms:
46. The plaintiff raised the following Invoices with respect to the three purchase orders dated 17.05.2019 pertaining to Jalandhar, Jammu and Sangrur:
47. The said invoices prescribed due date of payments, which fell on 28.11.2019, 21.12.2019, 28.12.2019, 15.01.2020 and 22.01.2020 respectively. The said invoices also state the terms of payments to be Net 120 days and that interest @ 1.5% per month may be charged on overdue amounts.
48. Pursuant to the said invoices being raised on the defendant no.1 by the plaintiff, the defendant no.1 issued the following PDCs in favour of the plaintiff:
49. In the present application, it is not disputed by the defendant no.1 that the said POs dated 17.05.2019 were issued by the defendant no.1. The said POs are stamped by the defendant no.1 company and carry the signatures of the authorised signatory of the defendant no.1. It is also not disputed that goods were supplied by the plaintiff to the defendant no.1 as per the POs dated 17.05.2019. It is also not disputed that the invoices which were raised by the plaintiff are with respect to the supply of goods by the plaintiff to defendant no.1 under the POs dated 17.05.2019.
50. The POs dated 17.05.2019 and also the invoices raised thereunder clearly stipulate that the payment shall be by way of PDCs.
51. The defendants have sought to raise a dispute as to the purport of issuance of the said PDCs by stating that they were issued as security, and on the assurance of the plaintiff to release further purchase orders in respect of other unrelated projects, however, there is nothing on record that bears out the said version of the defendants.
52. On the contrary, a perusal of the invoices issued by the plaintiff reveals that the invoices issued by the plaintiff pursuant to the POs dated 17.05.2019 clearly prescribe the due date/s; the relevant due dates being 28.11.2019, 21.12.2019, 28.12.2019, 15.01.2020 and 22.01.2020. The PDCs issued by the defendants are also of the dates 28.11.2019, 21.12.2019, 28.12.2019, 16.01.2020 and 22.01.2020. Evidently, the said PDCs were issued by the defendant no.1 in terms of the POs dated 17.05.2019. The cheques issued by the defendant no.1 are for a total amount of Rs. 42,139,448, which is also the sum total of the value of the three purchase orders dated 17.05.2019. The dates of the cheques also correspond with the due dates contained in the invoices raised by the plaintiff. It is quite evident that the PDCs were issued by the defendant no.1 to discharge its obligation under the POs dated 17.05.2019 and not based on any assurance by the plaintiff, or as security, as claimed by the defendants.
53. The plaintiff is also supported by the judgment of the Supreme Court in V.K. Enterprise (supra) wherein the Supreme Court has inter alia held that cheques are normally issued for liquidation of dues which are admitted. Without anything on record to prove otherwise, it is clear that the PDCs were issued by the defendant no.1 in favour of the plaintiff in pursuance of the POs dated 17.05.2019 and not as security cheques.
54. The receipt of the equipment specified in the POs dated 17.05.2019 has also been acknowledged by the defendants vide their email dated 30.08.2019, which is reproduced below:
The receipt of all items was further acknowledged by the defendants vide their email dated 15.09.2019 which is reproduced below:
55. Further, in the legal notice dated 14.05.2020 issued by the defendant no.1 to the plaintiff, it is inter-alia stated as under:
8. That you addressee supplied various equipments to my client on various occasion of total amount of Rs. 4,21,39,451/- . It is relevant to mentioned that you addressee supplied various kind of equipments in different project i.e. for Jalandhar Project Rs. 1,93,93,857/-, for Sangrur Project Rs. 1,25,65,949/- and for Jammu Project Rs. 1, 01, 79,645/-.
56. In the above factual conspectus, the primary defence that is sought to be raised by the defendant no. 1 is that other than the IOCL project with respect to which the aforesaid POs dated 17.05.2019 were issued, the plaintiff and the defendant no. 1 were contemporaneously engaged in the other projects, being the GMDA project and the AAI project, with respect to which certain disputes are stated to have arisen between the plaintiff and the defendant no.1, and that the liability of the defendant no.1 under the three POs dated 17.05.2019 with respect to the IOCL project stands eclipsed on account of the liability of the plaintiff under the other projects.
57. The above contention is wholly untenable.
58. The GMDA project is a project which was undertaken by the consortium consisting of the plaintiff, the defendant no.1 and one other company. A perusal of the consortium agreement and the terms and conditions of the GMDA project shows that the execution of the work in the GMDA project has no privity with the POs dated 17.05.2019. The consortium agreement as well as the terms and conditions of the GMDA project also contain an arbitration clause. Any disputes between the parties/ members of the consortium executing the said project, would be required to be resolved under the framework of that agreement. Moreover, in terms of the judgment of the Supreme Court in Union of India v. Roman Foundry12, in case of breach of a contract by a party, the party who commits the breach does not eo instanti incur any pecuniary obligation, nor does the party complaining of the breach become entitled to a debt due from the other party automatically. The only right which the party aggrieved by the breach of the contract has, is the right to sue for damages. The relevant portion of the said judgment is reproduced hereinbelow:
11. Having discussed the proper interpretation of clause 18, we may now turn to consider what is the real nature of the claim for recovery of which the appellant is seeking to appropriate the sums due to the respondent under other contracts. The claim is admittedly one for damages for breach of the contract between the parties. Now, it is true that the damages which are claimed are liquidated damages under Clause 14, but so far as the law in India is concerned, there is no qualitative difference in the nature of the claim whether it be for liquidated damages or for unliquidated damages. Section 74 of the Indian Contract Act eliminates the somewhat elaborate refinements made under the English common law in distinguishing between stipulations providing for payment of liquidated damages and stipulations in the nature of penalty. Under the common law a genuine pre-estimate of damages by mutual agreement is regarded as a stipulation naming liquidated damages and binding between the parties: a stipulation in a contract in terrorem is a penalty and the Court refuses to enforce it, awarding to the aggrieved party only reasonable compensation. The Indian Legislature has sought to cut across the web of rules and presumptions under the English common law, by enacting a uniform principle applicable to all stipulations naming amounts to be paid in case of breach, and stipulations by way of penalty, and according to this principle, even if there is a stipulation by way of liquidated damages, a party complaining of breach of contract can recover only reasonable compensation for the injury sustained by him, the stipulated amount being merely the outside limit. It, therefore makes no difference in the present case that the claim of the appellant is for liquidated damages. It stands on the same footing as a claim for unliquidated damages. Now the law is well settled that a claim for unliquidated damages does not give rise to a debt until the liability is adjudicated and damages assessed by a decree or order of a Court or other adjudicatory authority. When there is a breach of contract, the party who commits the breach does not eoinstanti incur any pecuniary obligation, nor does the party complaining of the breach becomes entitled to a debt due from the other party. The only right which the party aggrieved by the breach of the contract has is the right to sue for damages. That is not an actionable claim and this position is made amply clear by the amendment in Section 6(e) of the Transfer of Property Act, which provides that a mere right to sue for damages cannot be transferred. This has always been the law in England and as far back as 1858 we find it stated by Wightman, J., in Jones v. Thompson [(1858) 27 LJ QB 234 : 120 ER 430] Exparte Charles and several other cases decide that the amount of a verdict in an action for unliquidated damages is not a debt till judgment has been signed. It was held in this case that a claim for damages does not become a debt even after the jury has returned a verdict in favour of the plaintiff till the judgment is actually delivered. So also in O’Driscoll v. Manchester Insurance Committee [(1915) 3 KB 499 : 113 LT 683] Swinfen Eady, L.J., said in reference to cases where the claim was for unliquidated damages:
in such cases there is no debt at all until the verdict of the jury is pronounced assessing the damages and judgment is given. The same view has also been taken consistently by different High Courts in India. We may mention only a few of the decisions, namely, Jabed Sheikh v. Taher Mallik [AIR 1941 Cal 639 : 197 IC 606 : 45 Cal WN 519] , S. Milkha Singh v. N.K. Gopala Krishna Mudaliar [AIR 1956 Punj 174] and Iron and Hardware (India) Co. v. Firm Shamlal and Bros [AIR 1954 Bom 423, 425-26 : ILR 1954 Bom 739 : 56 Bom LR 473] . Chagla, C.J. in the last mentioned case, stated the law in these terms: (at pp. 425-26)
In my opinion it would not be true to say that a person who commits a breach of the contract incurs any pecuniary liability, nor would it be true to say that the other party to the contract who complains of the breach has any amount due to him from the other party.
As already stated, the only right which he has is the right to go to a Court of law and recover damages. Now, damages are the compensation which a Court of law gives to a party for the injury which he has sustained. But, and this is most important to note, he does not get damages or compensation by reason of any existing obligation on the part of the person who has committed the breach. He gets compensation as a result of the fiat of the Court. Therefore, no pecuniary liability arises till the Court has determined that the party complaining of the breach is entitled to damages. Therefore, when damages are assessed, it would not be true to say that what the Court is doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant.
This statement in our view represents the correct legal position and has our full concurrence. A claim for damages for breach of contract is, therefore, not a claim for a sum presently due and payable and the purchaser is not entitled, in exercise of the right conferred upon it under clause 18, to recover the amount of such claim by appropriating other sums due to the contractor. On this view, it is not necessary for us to consider the other contention raised on behalf of the respondent, namely, that on a proper construction of clause 18, the purchaser is entitled to exercise the right conferred under that clause only where the claim for payment of a sum of money is either admitted by the contractor, or in case of dispute, adjudicated upon by a court or other adjudicatory authority. We must, therefore, hold that the appellant had no right or authority under clause 18 to appropriate the amounts of other pending bills of the respondent in or towards satisfaction of its claim for damages against the respondent and the learned Judge was justified in issuing an interim injunction restraining the appellant from doing so.
59. Therefore, the defendant no.1 cannot attempt to set-off/claim damages or dues arising out of the GMDA in these proceedings as no liability arises in favour of the defendant no.1 till the said alleged breach of the said contract has been adjudicated upon.
60. Equally untenable is the contention of the defendant no.1 that under the AAI project executed by the plaintiff and defendant no.1, the plaintiff was obligated to raise POs worth Rs. 84 crores which it failed to do, and therefore, the defendants must be absolved from their liability under the POs and invoices which are subject matter of the present suit. Although it has been submitted by the defendant no.1 that the disputes in respect of the AAI Project were referred to Arbitration and an arbitral award is stated to have been issued whereby the defendants have been awarded with damages to the tune of Rs.43,07,904/- along with 6% interest per annum and Rs. 1,27,30,625/- as costs, the defendant no.1 has neither annexed a copy of the arbitral award and nor has the defendant no.1 made any mention of such arbitral award in its application seeking leave to defend the present suit. In any event, there is no impediment for the defendant no. 1 to take recourse against the plaintiff in respect of the AAI project, and if necessary, to seek enforcement of any arbitral award/s in its favour. The fact that the defendant no. 1 has intimated proceedings in respect of the AAI project without drawing any linkage therein with the present contract, itself shows that the transactions in respect of the AAI project are wholly independent of the present transactions.
61. Even assuming that the defendants have valid claim/s against the plaintiff under separate, independent contracts, it does not ipso facto entitle them to leave to defend in the present suit. As held by this court in Punjab and Sind Bank (supra), the raising of a counter-claim is not an action in defence on the face of it. This Court in Punjab and Sind Bank (supra) inter alia held as under:
8. The crucial question which arises for decision in the present cases is whether in order to determine that any triable issue arises in the pleas raised in the leave to defend application, this Court could or could not take notice of the pleas of the defendant that the defendant is entitled to file a counter-claim against the plaintiff. Order 37 Rule 3(5) CPC is to the following effect:
”(5) The defendant may, at any time within ten days from the service of such summon & for judgment, by affidavit or otherwise disclosing such facts u may be deemed sufficient to entitle him to defend, apply on such summons for lea.ve to defend such suit, and leave to defend may be granted to him unconditionally or upon such terms as may appear to the Court or Judge to be just. ……. ”
So, the only thing to be seen in the leave to defend application/affidavit of defendant is whether the same discloses such facts as may be deemed sufficient to entitle him to defend. The filing of a counter-claim is not an action in defense on the face of it. Under Order 8, rule 6A, Civil Procedure Code, in an ordinary suit, a defendant, in addition to his right of pleading set off, has been given a right to file a counter-claim against the plaintiff based on any right or claim in respect of a cause of action accruing to the defendant against the plaintiff but before the defendant has delivered his defence. The counter-claim could be also in the nature of a claim for damages. It is evident that the counter-claim has to be filed in an ordinary suit before the defendant delivers his defence.
xxx xxx xxx
9. The learned counsel for the defendants has made reference to para 414 of Volume 37 of Halisburry Law of England which summarises the English Law on the said subject, mentioning that mere fact that defendant raises a counter-claim does not entitle him to leave to defend and the same will be dis-regarded if it is frivolous, untenable or totally foreign to the action and on the other hand if it a plausible or an arguable counter-claim, the court may give the plaintiff judgment on the claim with costs, but with a stay of execution pending the trial of the counter-claim. It is also mentioned therein that in an action on a dishonoured bill of exchange or a cheque, the plaintiff is entitled to judgment on his claim without a stay of execution pending the trial of a counter-claim for damages for breach of another contract or the commission of a tort, for a bill of exchange is to be treated as cash unless there is total failure of consideration.
10. M. Chandhiok on the other hand has brought to my notice the English Law particularly Order, 14 which clearly contemplates entertainment of counter-claim in summary suits. Order 14(3)(2) contemplates granting of decree to the plaintiff but staying the execution till the decision on the counter-claim is given. Order 24(3)(1) is also worded differently. Its relevant portion reads as follows:
Unless on the hearing of an application under Rule 1 either the court dismisses the application or the defendant satisfies the Court with respect to the claim, or the part of a claim to which the application relates that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of that claim or part…….
So, no benefit can be taken from the law prevalent in England as the provisions of summary suits in England appear to be different from the provisions contained under Order, 37 CPC. It is also to be kept in view that the defendant is not legally bound to file any counter-claim. Assuming for the sake of arguments that the defendant is granted leave to defend on the assumption that he has some prima facie good case for raising a counter-claim against the plaintiff and the defendant after the grant of leave to defend fails to file the counter-claim. In that situation, it is not explained by learned counsel for the defendants as to what could the court do if no trial is to take place in respect of counter- claim; the grant of leave to defend to the defendant becomes illusory causing unnecessary delay in disposal of the summary suit.As already mentioned above, the provisions of Order, 37 on the face of it, did not contemplate entertainment of any counter-claim from the defendant. If the defendant has any such counter-claim against the plaintiff, he can very well bring a separate suit in that respect. If the legislation had intended that the plea of the defendant regarding his counter-claim should also be taken note of while deciding the application for leave to defend, it would have made its mind clear by incorporating the same language under Order, 37(3)(5) as it appears in the English Law. So the omission of the legislature to use the same language under Order, 37 CPC as is there under the English Law, would rather support the contention of the learned counsel for the plaintiff that the legislature did not intend that the plea of counter-claim should be entertained in a suit brought under Order, 37 CPC.
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14. I am of the view that in any suit brought under Order, 37 CPC, while considering the facts mentioned in the affidavit of the defendant seeking leave to defend the suit, the court is not to consider the facts which may entitle the defendant to file any suit for damage against the plaintiff’s claim or a counter-claim on the same aspect.
62. Further, this Court in Deutsche Ranco Gmbh (supra) inter alia held as under:
15. I have considered the submissions made by the learned counsel for the parties. In para 5 of the application for leave to defend, the relevant portion of which has been reproduced hereinabove, the defendant has clearly admitted the suit amount. The only defence taken by the defendant is the alleged counter claim of commission. I am afraid that this defence is not available to the defendant in a suit filed under the provision of Order XXXVII of the Code as the said provisions do not contemplate entertaining of any counter claim from the defendant. If the defendant has any such counter claim against the plaintiff, he can bring a separate suit in that respect. The view I have taken is fully supported by a judgment of this Court in Punjab & SindhBank vs. B.S.K. Tulshan, ILR(l 991) I Delhi 293.
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17. In view of the above discussion the leave to defend cannot be granted to the defendant on the basis of the alleged counter claim. Even otherwise the submissions with regard to the counter claim set up by the defendant in his application for leave to defend are quite vague and no particulars of the alleged contract for which the defendant has claimed amount of commission as counter claim have been mentioned, nor any document in support thereof has been filed by the defendant. Thus, the defence is not bona fide. I, therefore, find no substance in the counter claim as alleged by the defendant. The application for leave to defendant is, accordingly, dismissed.
62. The Honble High Court of Bombay in First Rand Services Private Limited v. Pantheon Infrastructure Limited13, inter alia, held as under:
34. I find substance in the submission of Mr. Engineer. If the contention on behalf of the defendant that the defendant is entitled to an unconditional leave to defend the suit since the defendant has raised a counterclaim is accepted, the very object of providing summary procedure under Order XXXVII of the Code would be rendered otiose. It is one thing to contend that, while seeking leave to defend the suit, the defendant has raised a counterclaim which raises a substantive defence or at any rate triable issues. It is a completely different thing to assert that since the defendant has raised a counterclaim, irrespective of the nature and quality of the defence and/or counterclaim, the defendant is entitled to an unconditional leave to defend the suit. It all turns upon the quality of the defence raised by the defendant. The tests enunciated by a catena of decisions and reformulated in the case of Hubtown (supra) are required to be applied even in a case where the defendant raises a counterclaim. An unconditional leave cannot be granted on the sole premise that the defendant has raised a counterclaim.
63. In M/s Swarovski India Pvt. Ltd. v. M/s Spa Agencies (I) Pvt. Ltd.14, this court has clarified that while deciding an application seeking leave to defend in a suit under Order XXXVII of the CPC, it is the defence with regard to course of dealings and cause of action set up in the suit which has to be considered while deciding whether leave to defend is to be granted and extraneous controversies between the parties based on different cause of action cannot be used to enlarge the scope of Order XXXVII of CPC. In M/s Swarovski India Pvt. Ltd. (supra), this court inter alia observed as under:
29. Once defendant has accepted the receipt of goods, he is liable to make the payment for the same. Simply because the business of the defendant has been shut down, he cannot raise a defence to compel the plaintiff to repurchase the goods supplied to him. This in a way is a counter claim made by the defendant which is foreign to the provisions contained under Order 37 CPC. A counter claim under Order 8 Rule 6-A CPC is to be filed before the defendant has delivered his defence or before the time limited for his defence is expired. A defendant in a suit under Order 37 CPC is not entitled to defend the claim of the plaintiff unless he raises certain triable issues by way of a defence in his application for leave to defend.
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32. In this case defendant has raised a defence of set off or counter claim by insisting upon the plaintiff to repurchase the goods. Defendant, therefore, cannot be allowed to travel beyond the scope of order 37 CPC and such a claim cannot be entertained in an application for leave to defend. It does not raise a triable issue between the parties. Extraneous controversies between the parties and different causes of action cannot justify enlargement of the scope and purpose of the summary action brought under order 37 CPC. The claim of the plaintiff for the supply of goods against impugned invoices is independent of the claim of the defendant for set off of value of the goods which he could not sell in the market, or in other words, a counter claim made against the plaintiff. This cannot be permitted to be raised by the defendant in proceedings under Order 37 CPC. (Reference is made to DeutscheRancoGmbh v. Mohan Murti, (1993) 52 DLT 288.)
33. In Union of India v. Raj Kumar Sawhney, 1995 III AD (Delhi) 881, it was observed:
14. There is another side of the picture. It is a well settled principle of law that a counter-claim is not maintainable in a case under Order XXXVII of the Code.
15. The underlying idea behind the enactment of Order XXXVII of the Code is to provide a summary procedure for the disposal of certain suits. Consequently, the defendant is not as in an ordinary suit entitled to a right to defend as a matter of right. He must apply for leave to defend within ten days from the date of service of the summonses and leave to defend is to be granted only in those discerning few cases where the defendant shows and discloses such facts which the courts deem sufficient enough in the circumstances of a given case for granting leave to defend. In other words, the defendant is required to show by way of his defence that the defence put forward by him gives rise to triable issues. Thus, a counter-claim if allowed to be raised by way of defence in a summary suit it is likely to obstruct and delay the trial of the suit. Hence the very purpose of the enactment of Order XXXVII is liable to be defeated. Had the intention of the legislature been to entertain counter-claims they would have provided so in the provisions of Order XXXVII itself. The presentation of a counter-claim cannot by any stretch of imagination be said to be by way of defence inasmuch as the party whosoever puts forward a claim has got a cause of action and can file a suit on the basis of the same. Furthermore, a counter-claim under Order VIII Rule 6 A of the Code is to be filed before the defendant has delivered his defence or before the time limited for delivering his defence has expired. Rule 6A which deals with the counter-claim by the defendant is reproduced below for appreciation of the said point:
6A. (1) A defendant in a suit may, in addition to his right of pleading a set-off under rule 6, set up by way of counter-claim against the claim of the plaintiff, and right or claim in respect of a cause of action accruing to the defendant against the plaintiff either before or after the filing of the suit but before the defendant has delivered his defence or before the time limited for delivering his defence has expired, whether such counter-claim is in the nature of a claim for damages or not…..
16. It has already been observed above, that a defendant in a suit under Order XXXVII is not entitled to defend the claim of the plaintiff unless he raised certain triable issues by way of defence in his application for leave to defend. Thus the counter-claims are beyond the scope of Order XXXVII of the Code and cannot be entertained thereunder. The same view was also given vent to by a Single Judge of this Court as reported in Bramec Suri (P) Ltd. v. Shri Smith Chem, 1981 RLR 60….. It is the defence with regard to course of dealings and cause of action set up in the plaint which has to be taken into account while granting such permission. Extraneous controversies and different causes of action cannot justify enlargement of the scope and purpose of the summary action brought under Order 37.
64. The above observations are also squarely applicable to the facts of the present case. The defendants cannot be permitted to raise extraneous controversies in respect of the independent dispute/s qua the GMDA project and/ or in respect of the AAI project, which are subject matter of separate, independent written contract/s.
65. The reliance sought to be placed by the defendants on the email dated 31.03.2020 of the plaintiff, and the implications sought to be derived therefrom, are also misconceived. The aforesaid email dated 31.03.2020 of the plaintiff addressed to the defendants is reproduced as under:
Dear Samir Ji,
As discussed over phone today, I understand due to Corona Virus lockdown and GOI guidelines your office is closed.
Since this is a Force Majeure situation, even if you try you cannot process any payments.
As discussed post the COVID 19 lockdown is removed by GOI, we will meet and discuss together if there are any pending issues, and you will process our payments as per mutually agreed timelines.
Kindly confirm
Regards,
Pradeep K
66. A perusal of the abovementioned email does not indicate that there was any agreement between the parties with respect to adjustment of the amounts under different contracts, in the manner suggested by the defendants.
67. Furthermore, in the emails exchanged between the plaintiff and the defendants, the defendants have sought for extension of time to clear the dues with respect to the IOCL project, in the hope that the same would be adjusted against other dues which are payable by the plaintiff to the defendants. This itself shows that the there is no controversy about the liability of the defendants in respect of the transactions which are subject matter of the present suit.
68. The principles regarding grant or refusal of an application for leave to defend, have been reiterated by the Supreme Court in the case of IDBI Trusteeship Services Ltd. v. Hubtown Ltd. (supra) wherein it has been held as under:
17. Accordingly, the principles stated in paragraph 8 of Mechelec’s case will now stand superseded, given the amendment of Order XXXVII Rule 3, and the binding decision of four judges in Milkhiram’s case, as follows:
17.1 If the Defendant satisfies the Court that he has a substantial defence, that is, a defence that is likely to succeed, the Plaintiff is not entitled to leave to sign judgment, and the Defendant is entitled to unconditional leave to defend the suit;
17.2 if the Defendant raises triable issues indicating that he has a fair or reasonable defence, although not a positively good defence, the Plaintiff is not entitled to sign judgment, and the Defendant is ordinarily entitled to unconditional leave to defend;
17.3 even if the Defendant raises triable issues, if a doubt is left with the trial judge about the Defendant’s good faith, or the genuineness of the triable issues, the trial judge may impose conditions both as to time or mode of trial, as well as payment into court or furnishing security. Care must be taken to see that the object of the provisions to assist expeditious disposal of commercial causes is not defeated. Care must also be taken to see that such triable issues are not shut out by unduly severe orders as to deposit or security;
17.4 if the Defendant raises a defence which is plausible but improbable, the trial Judge may impose conditions as to time or mode of trial, as well as payment into court, or furnishing security. As such a defence does not raise triable issues, conditions as to deposit or security or both can extend to the entire principal sum together with such interest as the court feels the justice of the case requires.
17.5 if the Defendant has no substantial defence and/or raises no genuine triable issues, and the court finds such defence to be frivolous or vexatious, then leave to defend the suit shall be refused, and the Plaintiff is entitled to judgment forthwith;
17.6 if any part of the amount claimed by the Plaintiff is admitted by the Defendant to be due from him, leave to defend the suit, (even if triable issues or a substantial defence is raised), shall not be granted unless the amount so admitted to be due is deposited by the Defendant in court.
69. In the facts of the present case, the defendants have no defence qua their liability in respect of the transactions which are the subject matter of the present suit. However, as noticed hereinabove, an untenable attempt has been made to draw linkage thereof with their alleged entitlement/s under separate, independent contracts. This is ex-facie impermissible under law and does not warrant grant of leave to defend.
70. As regards interest, it is noticed that the concerned invoices contain a stipulation that interest @ 1.5% per month may be charged on overdue amounts. As held by this court in Sanjay Kohli v. Vikas Srivastava15, and a catena of subsequent judgments, the plaintiff is entitled to claim interest in a suit under Order XXXVII of the CPC. Taking into account the current market rate of interest and the rates of interest charged by different banks, the plaintiff’s claim for interest @1.5% per month cannot be accepted. I am of the view that interest of justice will be met by directing that the plaintiff be entitled to interest @10% per annum with effect from the dates of non-realization of the PDCs.
71. For the aforesaid reasons, the application for leave to defend is dismissed.
CS (COMM) No. 656/2022
Consequently, a money decree is passed in favour of the plaintiff and against the defendants for a sum of Rs.4,21,39,402.95/-. In addition, the plaintiff shall be entitled to interest @10% per annum payable as under:
(i) on Rs.1,70,16,180/- from 28.11.2019 (date of 1st PDC) till 14.09.2022 (date of institution of the present suit); (ii) on Rs.64,36,125 from 21.12.2019 (date of 2nd PDC) till 14.09.2022; (iii) on Rs.20,68,284 from 28.12.20219 (date of 3rd PDC) till 14.09.2022; (iv) on Rs.92,07,711 from 16.01.2020 (date of 4th PDC) till 14.09.2022; (v) on Rs.19,97,476 from 22.01.2020 (date of 5th PDC) till 14.09.2022; and (vi) on Rs.54,13,645 from 22.01.2020 (date of 6th PDC) 14.09.2022.
Further, the plaintiff shall be entitled to pendente lite and future interest @10% per annum till the date of payment. Decree sheet be drawn up accordingly. There shall be no order as to costs.
SACHIN DATTA, J.
MARCH 04, 2024/r
1(2017) 1 SCC 568
2(2022) 3 SCC 294
3 2022 SCC OnLine Del 3
4 2005 (80) DRJ 9
5 2015 SCC OnLine Del 13519
6ILR 1991 (1) Delhi 293
7 1994 (28) DRJ 84 / 1993 SCC 01 Del 563
8 1997 (43) DRJ 754 (DB)
9 1952 SCC OnLine Hyd 44
10(2004) 3 SCC 504
11 (2010) 9 SCC 256
12 (1974) 2 SCC 231
13 2022 SCC OnLine Bom 4451
14 2009 SCC OnLine 1778
15 (2012) 130 DRJ 458
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