Ramji Dass vs . Roshan Lal And Others.

.

Civil Suit No. 33 of 2023

Reserved on : 30.5.2024

25.06.2024 Present: Mr. R.K. Bawa, Senior Advocate with

Mr. Jeevesh Sharma, Advocate, for the plaintiff.

Mr. Manik Sethi, Advocate, for defendants No.1, 3 to 11.

r to Mr. Ajay Sharma, Senior Advocate with Mr. Atharv Sharma, Advocate, for defendant No.2 and 12.

OMP No. 596 and 636 of 2023

The plaintiff filed a civil suit for specific

performance of the agreement/memorandum of

understanding dated 30.9.2018 executed between the

parties. It was pleaded that defendants No.1 to 11

executed and registered a partnership deed dated

22.10.2005 for constituting a partnership firm,

namely, M/s Ashirwad Developers and Promoters.

This firm was constituted to carry out the business of

real estate, builders, developers etc. Partnership Deed

was registered in the office of Deputy Registrar of

Firms, Solan, H.P. at Serial No. 273 on 21.12.2005. The

partners applied for the registration of the Firm with

H.P. Housing and Urban Development Authority,

Nigam Vihar, Shimla and obtained a certificate

::: Downloaded on - 25/06/2024 20:31:57 :::CIS bearing registration No. 125, dated 19.1.2006. Town

and Country Planner, BBNDA, Jharmazri, Baddi issued

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a No Objection Certificate in favour of the Firm to

purchase land under Section 118 of the H.P. Tenancy

and Land Reforms Act, 1972 (in short 'the Act'). The

Firm sought permission under Section 118 of the Act

for the purchase of land measuring 72-13 bigha,

situated in Mauza Katha, Tehsil Nalagarh, District

Solan, H.P. The State Government granted permission

vide letter dated 30.10.2007. The Firm purchased the

land in the year 2008. Defendants No. 1 to 11 entered

into an irrevocable agreement/memorandum of

understanding with the plaintiff, Rajesh Kumar Jain,

Rajesh Kumar Goel and Rajesh Jain. The plaintiff and

these persons purchased shares of defendants No.1 to

11 for a total consideration of ₹8,30,00,000/-. The

defendants No. 1 to 11 agreed to sell their share for a

total consideration of ₹8,30,00,000/- in three phases.

It was agreed that ₹1,54,00,000/- will be paid by the

plaintiff towards the deficiency in the Court fees to the

Revenue Department for getting the Sale Deed Nos.

705 to 726, dated 26.4.2008 and Sale Deed No. 728,

dated 28.4.2008 released, which were impounded on

::: Downloaded on - 25/06/2024 20:31:57 :::CIS account of deficiency of stamp duty. The remaining

amount of ₹6,76,00,000/- was to be paid in three

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phases as per the agreement. Plaintiff paid

₹1,10,00,000/- till 30.9.2018 to defendants No.1 to 11.

Defendants No.2, 3, 4, 6, 7, 9 and 11 surrendered and

transferred 64% share in favour of the plaintiff. An

amount of ₹1,90,00,000/- was paid until December,

2019 by way of several bank drafts. The plaintiff paid

₹1,00,00,000/-on different dates. Thus, an amount of

₹4,00,00,000/- was paid to defendants No. 1 to 11 till

December, 2019. Rajesh Kumar Jain, Rajesh Kumar

Goel and Rajesh Jain paid ₹33,42,500/- and the

remaining amount of ₹3,66,57,500/- was paid

exclusively by the plaintiff. The sale deeds were also

released by the plaintiff and mutation of the land was

attested in favour of defendant No.12. The plaintiff

and other persons issued post-dated cheques

amounting to ₹4,30,00,000/- in favour of the

partners of the Firm; however, the defendants did not

encash the cheques. Rajesh Kumar Jain, Rajesh Kumar

Goel and Rajesh Jain filed a civil suit against the

defendants for the recovery of ₹45,44,800/-. The suit

was compromised and withdrawn. The plaintiff was

::: Downloaded on - 25/06/2024 20:31:57 :::CIS not arrayed as a party in the suit. The plaintiff was

required to be inducted as a partner of the Firm. Steps

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were required to be taken for the reconstitution of the

Partnership Firm. As per clause (iv), defendants No.2,

3, 4, 6, 7, 9 and 11 having a 64% share in the Firm

retired after the settlement of their accounts. The

original partnership

to was to be reconstituted/

reconstructed as per clause 5, the plaintiff and three

persons were to be added as new partners at Serial

Nos. 12 to 15 in the Partnership Deed. The defendants

No. 1, 5, 8 and 10 would have a 36% share while the

remaining 64% would be held by the plaintiff and

other persons. Plaintiff is ready and willing to perform

his part of the agreement. He approached defendants

no. 1 to 11 to sign/execute and reconstitute the

partnership deed after receiving ₹4,30,00,000/-, but

defendants No. 1 to 11 failed to do so despite repeated

requests. The possession of the land was also

delivered to the plaintiff but defendants No. 1 to 11

threatened to change its nature. They also raised

construction over the suit land and dispossessed the

plaintiff from it. The plaintiff filed a civil suit seeking

a permanent prohibitory injunction, which was

::: Downloaded on - 25/06/2024 20:31:57 :::CIS subsequently withdrawn. Hence, the suit was filed to

seek the relief mentioned above.

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2. The defendants No. 1, 3 to 11 filed an

application for rejection of the plaint. It was asserted

that the memorandum of understanding dated

30.9.2018 is illegal because defendant No. 12 is not a

party to the memorandum of understanding. It is also

not signed by the authorized managing partners. Six

persons out of twelve had not signed it and only four

had signed it. The plaintiff did not pay any money as

per the memorandum of understanding and the

matter was settled after compromise. The present suit

is barred by the limitation. The suit is also barred

under Order 2 Rule 2 of CPC. A Memorandum of

Understanding is not registered and cannot be looked

into. Therefore, it was prayed that the present

application be allowed and the plaint be rejected.

3. Another application was filed by

defendants No.2 and 12 seeking rejection of the plaint.

It is asserted that the memorandum of understanding

was not executed with defendants No.2 and 12 and the

plaintiff has no cause of action. Previous suits were

withdrawn without any liberty to file a fresh suit and

::: Downloaded on - 25/06/2024 20:31:57 :::CIS the present suit is not maintainable. Therefore, it was

prayed that the application be allowed and the plaint

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be rejected.

4. I have heard Mr Manik Sethi, learned

counsel for defendants No. 1, 3 to 11, Mr Ajay Sharma,

learned Senior Counsel, assisted by Mr Atharv

Sharma, learned counsel for defendant No. 2 & 12 and

Mr R.K. Bawa, learned Senior Counsel, assisted by Mr

Jeevesh Sharma, learned counsel for the plaintiff.

5. Mr. Manik Sethi, learned counsel for

defendants No. 1, 3 to 11 submitted that the

memorandum of understanding was not executed

with the Partnership Firm. It is not signed by all the

parties and by managing partners. Therefore, it does

not confer any cause of action to file the suit. The firm

cannot be reconstituted without the consent of all the

partners as per Section 31 of the Partnership Act. The

suit is in the nature of a commercial suit and is not

maintainable before this Court. Hence, he prayed that

the present application be allowed and the plaint be

rejected.

6. Mr. Ajay Sharma, learned Senior Counsel

for defendants No.2 and 12 submitted that the

::: Downloaded on - 25/06/2024 20:31:57 :::CIS agreement was not signed with the firm and is not

binding upon it. The suit is barred by the provisions of

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Order 2 Rule 2 and the limitation. All the parties to the

agreement are not before this Court. Therefore, he

prayed that the present application be allowed and the

plaint be rejected.

7.

Mr. R.K. Bawa, learned Senior Counsel for

the plaintiff submitted that the Court is to look into

the plaint and the documents while deciding the

application under Order 7 Rule 11 of CPC. The plea

regarding the suit being a commercial dispute was

never taken in the application under Order 7 Rule 11 of

CPC and cannot be taken during arguments. The

Memorandum of Understanding does not fall within

the definition of Section 2(c) and the provision of

Order 2 Rule 2 CPC does not apply to the present case

because the plaint in the previous suit is not on record.

The limitation for filing the suit for specific

performance will start running from the date when

the plaintiff had knowledge and taking the limitation

from that date, the suit is within limitation. Hence, he

prayed that the applications be dismissed.

::: Downloaded on - 25/06/2024 20:31:57 :::CIS 8. I have given considerable thought to the

submissions at the bar and have gone through the

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records carefully.

9. The principles for exercising jurisdiction

under Order VII Rule 11 were laid down by the Hon'ble

Supreme Court in Eldeco Housing & Industries Ltd. v.

was observed:

r to Ashok Vidyarthi, 2023 SCC OnLine SC 1612 wherein it

17. In Kamala v. K. T. Eshwara Sa 2008 (12) SCC 661, this Court opined that for invoking clause

(d) of Order VII Rule 11 CPC, only the averments in the plaint would be relevant. For

this purpose, there cannot be any addition or subtraction. No amount of evidence can be looked into. The issue of the merits of the

matter would not be within the realm of the Court at that stage. The Court at that stage

would not consider any evidence or enter a disputed question of fact of law. Relevant

paragraphs thereof are extracted below:

"21. Order 7 Rule 11(d) of the Code has limited application. It must be shown that the suit is barred under any law. Such a conclusion must be drawn from the averments made in the plaint. Different clauses in Order 7 Rule 11, in our opinion, should not be mixed up. Whereas in a given case, an application for rejection of the plaint may be filed on more than one ground specified in various sub-clauses thereof, a clear finding to that effect must be arrived at. What would be relevant for invoking clause (d) of Order 7 Rule 11 of the Code are the averments made in the plaint. For that purpose, there cannot be any addition or subtraction. The absence of jurisdiction

::: Downloaded on - 25/06/2024 20:31:57 :::CIS on the part of a court can be invoked at different stages and under different

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provisions of the Code. Order 7 Rule 11 of

the Code is one, Order 14 Rule 2 is another.

22. For the purpose of invoking Order 7 Rule 11(d) of the Code, no amount of evidence can

be looked into. The issues on merit of the matter which may arise between the parties would not be within the realm of the court at that stage. All issues shall not be the subject

matter of an order under the said provision.

23. The principles of res judicata, when attracted, would bar another suit in view of Section 12 of the Code. The question

involving a mixed question of law and fact

which may require not only examination of the plaint but also other evidence and the order passed in the earlier suit may be taken up either as a preliminary issue or at

the final hearing, but, the said question cannot be determined at that stage.

24. It is one thing to say that the averments

made in the plaint on their face disclose no cause of action, but it is another thing to

say that although the same discloses a cause of action, the same is barred by law.

25. The decisions rendered by this Court as

well as by various High Courts are not uniform on this behalf. But, then the broad principle which can be culled out therefrom is that the court at that stage would not consider any evidence or enter into a disputed question of fact or law. In the event, the jurisdiction of the court is found to be barred by any law, meaning thereby, the subject-matter thereof, the application for rejection of plaint should be entertained." (emphasis supplied)

18. Similar was the view expressed in Shakti Bhog Food Industries Ltd. v. Central Bank of India (2020) 17 SCC 260: 2020:INSC:413 and Srihari Hanumandas Totala v. Hemant Vithal Kama (2021) 9 SCC 99: 2011:INSC:387.

::: Downloaded on - 25/06/2024 20:31:57 :::CIS 19. The law applicable for deciding an application under Order VII Rule 11 CPC was

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summed up by this Court in Dahiben v.

Arvindbhai Kalyanji Bhanusali (Gajra) dead through legal representatives (2020) 7 SCC 366:

2020: INSC:450. Relevant parts of paragraph 23

thereof are extracted below:

"23 to 23.1 x x x 23.2. The remedy under Order 7 Rule 11 is an independent and special remedy, wherein

the court is empowered to summarily dismiss a suit at the threshold, without proceeding to record evidence and conducting a trial, on the basis of the

evidence adduced, if it is satisfied that the

action should be terminated on any of the grounds contained in this provision. 23.3. The underlying object of Order 7 Rule 11(a) is that if in a suit, no cause of action is

disclosed, or the suit is barred by limitation under Rule 11(d), the court would not permit the plaintiff to unnecessarily

protract the proceedings in the suit. In such a case, it would be necessary to put an end

to the sham litigation, so that further judicial time is not wasted.

23.4. In Azhar Hussain v. Rajiv Gandhi, 1986

Supp SCC 315, this Court held that the whole purpose of conferment of powers under this provision is to ensure that a litigation which is meaningless, and bound to prove abortive, should not be permitted to waste judicial time of the court, in the following words:

"12. ... The whole purpose of conferment of such powers is to ensure that a litigation which is meaningless, and bound to prove abortive should not be permitted to occupy the time of the court and exercise the mind of the respondent. The sword of Damocles need not be kept hanging over his head unnecessarily without point or purpose.

::: Downloaded on - 25/06/2024 20:31:57 :::CIS Even in an ordinary civil litigation, the court readily exercises the power to

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reject a plaint, if it does not disclose any

cause of action."

23.5. The power conferred on the court to terminate a civil action is, however, a

drastic one and the conditions enumerated in Order 7 Rule 11 are required to be strictly adhered to.

23.6. Under Order 7 Rule 11, a duty is cast on

the court to determine whether the plaint discloses a cause of action by scrutinising the averments in the plaint [Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success

I, (2004) 9 SCC 512], read in conjunction

with the documents relied upon, or whether the suit is barred by any law.

xxxxxxxxx 23.9. In the exercise of power under this

provision, the court would determine if the assertions made in the plaint are contrary to statutory law, or judicial dicta, for

deciding whether a case for rejecting the plaint at the threshold is made out.

23.10. At this stage, the pleas taken by the defendant in the written statement and application for rejection of the plaint on the

merits, would be irrelevant, and cannot be adverted to, or taken into consideration.

[Sopan Sukhdeo Sable v. Charity Commr., (2004) 3 SCC 137] 23.11. The test for exercising the power under Order 7 Rule 11 is that if the averments made in the plaint are taken in entirety, in conjunction with the documents relied upon, would the same result in a decree being passed. This test was laid down in Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success I [Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success I, (2004) 9 SCC 512] which reads as : (SCC p. 562, para 139)

::: Downloaded on - 25/06/2024 20:31:57 :::CIS "139. Whether a plaint discloses a cause of action or not is essentially a question

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of fact. But whether it does or does not

must be found out from reading the plaint itself. For the said purpose, the averments made in the plaint in their

entirety must be held to be correct. The test is as to whether if the averments made in the plaint are taken to be correct in their entirety, a decree would

be passed."

23.12. In Hardesh Ores (P) Ltd. v. Hede & Co. [Hardesh Ores (P) Ltd. v. Hede & Co., (2007) 5 SCC 614] the Court further held

that it is not permissible to cull out a

sentence or a passage and to read it in isolation. It is the substance, and not merely the form, which has to be looked into. The plaint has to be construed as it

stands, without addition or subtraction of words. If the allegations in the plaint prima facie show a cause of action, the court

cannot embark upon an enquiry whether the allegations are true in fact. D.

Ramachandran v. R.V. Janakiraman, (1999) 3 SCC 267; See also Vijay Pratap Singh v. Dukh Haran Nath Singh, AIR 1962 SC 941].

23.13. If on a meaningful reading of the plaint, it is found that the suit is manifestly vexatious and without any merit, and does not disclose a right to sue, the court would be justified in exercising the power under Order 7 Rule 11 CPC.

23.14. The power under Order 7 Rule 11 CPC may be exercised by the court at any stage of the suit, either before registering the plaint, after issuing summons to the defendant, or before the conclusion of the trial, as held by this Court in the judgment of Saleem Bhai v. State of Maharashtra, (2003) 1 SCC 557. The plea that once issues are framed, the matter must necessarily go to trial was repelled by

::: Downloaded on - 25/06/2024 20:31:57 :::CIS this Court in Azhar Hussain v. Rajiv Gandhi, 1986 Supp SCC 315. Followed

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in Manvendrasinhji Ranjitsinhji

Jadeja v. Vijaykunverba, 1998 SCC OnLine Guj 281 : (1998) 2 GLH 823.

23.15. The provision of Order 7 Rule 11 is

mandatory in nature. It states that the plaint "shall" be rejected if any of the grounds specified in clauses (a) to (e) are made out. If the court finds that the plaint

does not disclose a cause of action, or that the suit is barred by any law, the court has no option, but to reject the plaint."

20. The same view was reiterated in Kum.

Geetha v. Nanjundaswamy2023 SCC OnLine SC

1407: 2023 INC 964."

10. Mr. Manik Sethi, learned counsel for

defendants No.1, 3 to 11 relied upon the definition of

commercial dispute in Section 2 (1) (c) of the

Commercial Courts Act to submit that the

Memorandum of Understanding and the plaint relate

to Joint Venture Agreement, Share Holder Agreement,

Partnership Agreement, Construction and

Infrastructure Contract and it is related to immovable

property. Hence, only the Commercial Court and not

an ordinary Court will have jurisdiction to hear and

entertain it. He submitted that the words "arising out

of" are to be construed widely. He relied upon the

judgment of the Hon'ble Supreme Court in State of

Orissa Vs. State of Andhra Pradesh 2006 (9) SCC 591 and

::: Downloaded on - 25/06/2024 20:31:57 :::CIS Telangana High Court in Legend Estates Pvt. Ltd. Vs.

Poulomi Estates Pvt. Ltd. 2024 SCC Online TS 690 in

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support of his submissions. He relied upon the

judgment of the Telangana High Court in P. Siva

Mohan Reddy Vs. K.R.K. Reddy 2023 SCC Online TS 1337

to explain the meaning of Joint Venture Agreement.

He submitted that once a commercial dispute was

filed before the regular Court, the regular Court is

bound to return the same.

11. In order to appreciate this submission, it is

necessary to note the relevant clauses of section 2 (1)

(c) of the Commercial Courts Act which reads as

under:

2. Definitions. -- (1) In this Act, unless the context otherwise requires,--

xxxxx

(c) "commercial dispute" means a dispute arising out of--

(i) ordinary transactions of merchants, bankers, financiers and traders such as those relating to mercantile documents, including enforcement and interpretation of such documents;

(ii) export or import of merchandise or services;

(iii) issues relating to admiralty and maritime law;

(iv) transactions relating to aircraft, aircraft engines, aircraft equipment and

::: Downloaded on - 25/06/2024 20:31:57 :::CIS helicopters, including sales, leasing and financing of the same;

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(v) carriage of goods;

(vi) construction and infrastructure contracts, including tenders;

(vii) agreements relating to immovable

property used exclusively in trade or commerce;

(viii) franchising agreements;

(ix) distribution and licensing

agreements;

(x) management and consultancy agreements; (xi) joint venture agreements;

(xii) shareholders agreements;

(xiii) subscription and investment agreements pertaining to the services industry including outsourcing services and financial services;

(xiv) mercantile agency and mercantile usage;

(xv) partnership agreements;

(xvi) technology development agreements;

(xvii) intellectual property rights relating to registered and unregistered trademarks, copyrights, patents, designs,

domain names, geographical indications and semiconductor integrated circuits; (xviii) agreements for the sale of goods or provision of services;

(xix) exploitation of oil and gas reserves or other natural resources including electromagnetic spectrum;

(xx) insurance and re-insurance; (xxi) contracts of agency relating to any of the above; and (xxii) such other commercial disputes as may be notified by the Central Government.

::: Downloaded on - 25/06/2024 20:31:57 :::CIS Explanation.-- A commercial dispute shall not cease to be a commercial dispute

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merely because--

(a) it also involves action for recovery of immovable property or realisation of monies out of immovable property given

as security or involves any other relief pertaining to immovable property;

(b) one of the contracting parties is the State or any of its agencies or

instrumentalities, or a private body carrying out public functions;

12. The term Share Holders Agreement was

defined by the Hon'ble Supreme Court in Vodafone

International Holdings BV v. Union of India, (2012) 6 SCC

613: (2012) 3 SCC (Civ) 867: (2012) 341 ITR 1: 2012 SCC

OnLine SC 77 as under:-

"Shareholders' agreement

261. Shareholders' Agreement (for short "SHA") is essentially a contract between some

or all other shareholders in a company, the purpose of which is to confer rights and impose obligations over and above those provided by the company law. SHA is a private contract between the shareholders compared to the articles of association of the company, which is a public document. Being a private document it binds parties thereof and not the other remaining shareholders in the company. The advantage of SHA is that it gives greater flexibility, unlike the articles of association. It also makes provisions for the resolution of any dispute between the shareholders and also how future capital contributions have to be made. Provisions of the SHA may also go contrary to the provisions of the articles of association, in that event, naturally,

::: Downloaded on - 25/06/2024 20:31:57 :::CIS provisions of the articles of association would govern and not the provisions made in SHA.

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263. This Court in Gherulal Parakh v.

Mahadeodas Maiya [AIR 1959 SC 781: 1959 Supp (2) SCR 406] held that freedom of contract can be restricted by law only in cases where it is for

some good of the community. The Companies Act, 1956 or the FERA, 1973, RBI Regulation or the IT Act do not explicitly or impliedly forbid shareholders of a company to enter into

agreements as to how they should exercise voting rights attached to their shares.

264. Shareholders can enter into any agreement in the best interest of the company,

but the only thing is that the provisions in SHA

shall not go contrary to the articles of association. The essential purpose of SHA is to make provisions for proper and effective internal management of the company. It can

visualise the best interest of the company on diverse issues and can also find different ways not only for the best interest of the

shareholders but also for the company as a whole.

265. In Shanti Prasad Jain v. Kalinga Tubes Ltd.

[AIR 1965 SC 1535 : (1965) 2 SCR 720] this Court held that agreements between non-members

and members of the company will not bind the company, but there is nothing unlawful in entering into an agreement for transferring of shares. Of course, the manner in which such agreements are to be enforced in the case of breach is given in the general law between the company and the shareholders. A breach of SHA which does not breach the articles of association is a valid corporate action but, as we have already indicated, the parties aggrieved can get remedies under the general law of the land for any breach of that agreement.

266. SHA also provides for matters such as restriction of transfer of shares i.e. right of first refusal (RoFR), right of first offer (RoFO),

::: Downloaded on - 25/06/2024 20:31:57 :::CIS drag-along rights (DARs) and tag-along rights (TARs), pre-emption rights, call option, put

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option, subscription option, etc. SHA in a

characteristic joint venture enterprise may regulate its affairs on the basis of various provisions enumerated above, because a joint

venture enterprise may deal with matters regulating the ownership and voting rights of shares in the company, control and manage the affairs of the company, and also may make

provisions for resolution of disputes between the shareholders.

267. Many of the abovementioned provisions find a place in SHAs, FWAs, term sheet

agreements, etc. in the present case, hence, we

may refer to some of those provisions:

(a) Right of first refusal (RoFR)-- RoFR permits its holders to claim the transfer of the subject of the right with a

unilateral declaration of intent which can either be contractual or legal. No statutory recognition has been given to

that right either in the Indian company law or the income tax laws. Some

foreign jurisdictions have made provisions regulating those rights by statutes. Generally, RoFR is contractual

and determined in an agreement. RoFR clauses have contractual restrictions that give the holders the option to enter into commercial transactions with the owner on the basis of some specific terms before the owner may enter into the transactions with a third party.

Shareholders' right to transfer the shares is not totally prevented, yet a shareholder is obliged to offer the shares first to the existing shareholders. Consequently, the other shareholders will have the privilege over the third parties with regard to the purchase of shares.

::: Downloaded on - 25/06/2024 20:31:57 :::CIS (b) Tag-along rights (TARs)--TARs, a facet of RoFR, often refer to the power of

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a minority shareholder to sell their

shares to the prospective buyer at the same price as any other shareholder would propose to sell. In other words, if

one shareholder wants to sell, he can do so only if the purchaser agrees to purchase the other shareholders, who wish to sell at the same price. TAR often

finds a place in SHA which protects the interest of the minority shareholders.

(c) Subscription option--Subscription option gives the beneficiary a right to

demand issuance of allotment of shares

of the target company. It is for that reason that a subscription right is normally accompanied by ancillary provisions including an exit clause

where, if dilution crosses a particular level, the counterparties are given some kind of exit option.

(d) Call option--Call option is an arrangement often seen in merger and

acquisition projects, especially when they aim at foreign investment. A call option is given to a foreign buyer by

agreement so that the foreign buyer is able to enjoy the permitted minimum equity interests of the target company. A call option is always granted as a right, not an obligation, which can be exercised upon satisfaction of certain conditions and/or within the certain period agreed by the grantor and grantee. The buyer of the call option pays for the right, without the obligation to buy some underlying instrument from the writer of the option contract at a set future date and at the strike price. A call option is where the beneficiary of the action has a right to compel a counterparty to transfer his shares at a

::: Downloaded on - 25/06/2024 20:31:57 :::CIS predetermined or price fixed in accordance with the predetermined

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maxim or even fair market value which

results in a simple transfer of shares.

(e) Put option--A put option represents the right, but not the requirement to sell

a set number of shares of stock, which one does not yet own, at a predetermined strike price, before the option reaches the expiration date. A put

option is purchased with the belief that the underlying stock price will drop well before the strike price, at which point one may choose to exercise the option.

r (f) Cash and cashless options--Cash and

cashless options are related

arrangements to call and put options creating a route by which the investors could carry out their investment, in the

event of an appreciation in the value of shares.

268. SHA, therefore, regulates the ownership

and voting rights of shares in the company including RoFR, TARs, DARs, pre-emption

rights, call options, put options, subscription options, etc. in relation to any shares issued by the company, restriction of transfer of shares

or granting securities interest over shares, provision for minority protection, lock-down or for the interest of the shareholders and the company. Provisions referred to above, which find place in an SHA, may regulate the rights between the parties which are purely contractual and those rights will have efficacy only in the course of ownership of shares by the parties."

13. It is apparent from this definition that a

Share Holder Agreement is an agreement between

some or all shareholders in a Company. Admittedly,

::: Downloaded on - 25/06/2024 20:31:57 :::CIS the Firm is not a Company; therefore, Share Holder

Agreement will not apply to the present case.

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14. Joint Venture Agreement was defined by

Telangana High Court in P. Siva Mohan Reddy (supra)

as under: -

15. In Faqir Chand Gulati (supra), the Hon'ble

Supreme Court considered the definition of the term 'Joint Venture' in various dictionaries. The appellant is the owner of land in New Delhi. He entered into an agreement with the

respondents to develop his land and construct

apartments on it. Owing to several unauthorized deviations made by the respondent, the appellant filed a complaint before the District Consumer Disputes

Redressal Forum seeking relief against the respondent, which was dismissed. On appeal to the State Forum, the appeal was dismissed

again on the ground that the agreement

between the appellant and respondents was in the nature of a joint venture. This was upheld by the National Commission as well. While

considering the question of law before the Hon'ble Supreme Court whether a landowner entering into an agreement with a builder for the construction of an apartment building and sharing of the constructed area is a 'consumer' entitled to maintain a complaint against the builder as service provider Hon'ble Supreme Court noted the definition of 'joint venture' as defined in few journals. Paras 22 and 23 read as under:

"22. The following definition of "joint venture" occurring in American Jurisprudence (2nd Edn., Vol. 46, pp. 19, 22 and 23) is relevant: "A joint venture is frequently defined as an association of two or more persons formed to carry out

::: Downloaded on - 25/06/2024 20:31:57 :::CIS a single business enterprise for profit. More specifically, it is in the association

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of persons with intent, by way of

contract, express or implied, to engage in and carry out a single business venture for joint profit, for which

purpose such persons combine their property, money, effects, skill, and knowledge, without creating a partnership, a corporation or other

business entity, pursuant to an agreement that there shall be a community of interest among the parties as to the purpose of the

undertaking and that each joint venturer

must stand in the relation of principal, as well as agent, as to each of the other coventurers within the general scope of the enterprise.

Joint ventures are, in general, governed by the same rules as partnerships. The relations of the parties to a joint venture

and the nature of their association are so similar and closely akin to a partnership

that their rights, duties, and liabilities are generally tested by rules which are closely analogous to and substantially

the same, if not exactly the same as those which govern partnerships. Since the legal consequences of a joint venture are equivalent to those of a partnership, the courts freely apply partnership law to joint ventures when appropriate. In fact, it has been said that the trend in the law has been to blur the distinctions between a partnership and a joint venture, very little law being found applicable to one that does not apply to the other. Thus, the liability for torts of parties to a joint venture agreement is governed by the law applicable to partnerships. A joint venture is to be distinguished from a relationship of an

::: Downloaded on - 25/06/2024 20:31:57 :::CIS independent contractor, the latter being one who, exercising independent

.

employment, contracts to do work

according to his own methods and without being subject to the control of his employer except as to the result of

the work, while a joint venture is a special combination of two or more persons where, in some specific venture, a profit is jointly sought without any

actual partnership or corporate designation."

23. To the same effect is the definition in Corpus Juris Secundum (Vol. 48-A, pp.

314-15): " Joint venture', a term used

interchangeably and synonymous with 'joint adventure', or coventure, has been defined as a special combination of two or more persons wherein some specific

venture for profit is jointly sought without any actual partnership or corporate designation, or as an

association of two or more persons to carry out a single business enterprise for

profit or a special combination of persons undertaking jointly some specific adventure for profit, for which

purpose they combine their property, money, effects, skill, and knowledge... Among the acts or conduct which are indicative of a joint venture, no single one of which is controlling in determining whether a joint venture exists, are (1) joint ownership and control of property; (2) sharing of expenses, profits and losses, and having and exercising some voice in determining the division of net earnings; (3) community of control over, and active participation in, management and direction of business enterprise; (4) intention of parties, express or implied;

::: Downloaded on - 25/06/2024 20:31:57 :::CIS and (5) fixing of salaries by joint agreement." (emphasis supplied).

.

15. It is apparent from the judgment that a

joint venture is similar and closely akin to a

partnership but is not a partnership. Admittedly, in

the present case, the association of defendants No.1 to

11 is a partnership; hence, the same will not be covered

by a Joint Venture Agreement. Further, the Joint

Venture Agreement is for carrying out a single

business enterprise or some specific adventure;

however, in the present case, the partnership has to

carry out the work of development of the property and

building/construction work, which is not confined to

one venture but is general in nature. Thus, the term

Joint Venture Agreement will also not apply to it.

16. In the present case, as per the plaint, the

property was to be purchased and was to be developed.

It was laid down by Gujarat High Court in Vasu

Healthcare Pvt. Ltd. Vs. Gujarat Akruti TCG Biotech Ltd.

AIR 2017 Gujarat 153 that "used" must mean "actually

used" or "being used" and not "likely to be used". It

was observed:-

"Therefore, if the dispute falls within any of clause 2(c) the dispute can be said to be a

::: Downloaded on - 25/06/2024 20:31:57 :::CIS "commercial dispute" for which the Commercial Court would have jurisdiction. It

.

is required to be noted that before the learned

Commercial Court, the original plaintiff relied upon sections 2(c)(i), 2(c)(ii) and 2(c)(xx) of the Commercial Courts Act only. Learned

Counsel appearing on behalf of the original plaintiff has candidly admitted and/or conceded that the case shall not fall within clause 2(c)(i); 2(c)(ii) or 2(c)(xx) of the

Commercial Courts Act. It is required to be noted that before the learned Commercial Court, it was never the case on behalf of the original plaintiff that the case would fall

within section 2(c)(vii) of the learned

Commercial Court. Despite the above, we have considered on merits whether even considering section 2(c)(vii) of the Commercial Courts Act, the dispute between

the parties can be said to be a "commercial dispute" within the definition of section 2(c) of the Commercial Courts Act or not?

Considering section 2(c)(vii), "commercial dispute" means a dispute arising out of the

agreements relating to immovable property used exclusively in trade or commerce. As observed hereinabove, at the time of filing of

the suit and even so pleaded in the plaint, the immovable property/plots the agreements between the parties cannot be said to be agreements relating to immovable property used exclusively in trade or commerce. As per the agreement between the party after getting the plots on lease from the GIDC, the same was required to be thereafter developed by the original defendant No. 1 and after providing all infrastructural facilities and sub-plotting, the same is required to be given to other persons like the original plaintiff. It is the case on behalf of the original plaintiff that the original defendant No. 1 has failed to provide any infrastructural facilities and develop the plots and therefore, a civil suit for specific

::: Downloaded on - 25/06/2024 20:31:57 :::CIS performance of the agreement has been filed. There are other alternative prayers also.

.

Therefore, it cannot be said that the

agreement is as such relating to immovable property used exclusively in trade or commerce. It is the case on behalf of the

original plaintiff that as in clause (vii) of section 2(c), the phraseology used is not "actually used" or "being used" and therefore, even if at present the plot is not used and even

if it is likely to be used even in future, in that case also, section 2(c)(vii) shall be applicable and therefore, the Commercial Court would have jurisdiction. The aforesaid has no

substance. As per the cardinal principle of law,

while interpreting a particular statute or provision, the literal and strict interpretation has to be applied. It may be noted that important words used in the relevant

provisions are "immovable property used exclusively in trade or commerce". If the submission on behalf of the original plaintiff

is accepted in that case it would be adding something in the statute which is not there in

the statute, which is not permissible. On a plain reading of the relevant clause, it is clear that the expression "used" must mean

"actually used" or "being used". If the intention of the legislature was to expand the scope, in that case, the phraseology used would have been different as for example, "likely to be used" or "to be used". The word "used" denotes "actually used" and it cannot be said to be either "ready for use" "likely to be used"; or "to be used". A similar view has been taken by the Bombay High Court (Nagpur Bench) in the case of Dinesh Kumar Gulabchand Agrawal (Supra) and it is observed and held that the word "used" denotes "actually used"

and not merely "ready for use". It is reported that SLP against the said decision has been dismissed by the Hon'ble Supreme Court."

::: Downloaded on - 25/06/2024 20:31:57 :::CIS 17. This judgment was approved by the

Hon'ble Supreme Court in Ambalal Sarabhai

.

Enterprises Ltd. v. K.S. Infraspace LLP, (2020) 15 SCC 585:

2019 SCC OnLine SC 1311, wherein it was observed:-

12. Though we are informed that the said decision is assailed before this Court in a special leave petition we are inclined to agree

with the view expressed therein. This is for the reason that this Court while examining the issue relating to exclusive land use, though in ra different context has laid emphasis on the present user of the land either for agriculture

or non-agriculture purposes being relevant. In that regard, the decision relied on by the learned Senior Advocate for the respondent

in Federation of A.P. Chambers of Commerce & Industry v. State of A.P. [Federation of A.P. Chambers of Commerce & Industry v. State of

A.P., (2000) 6 SCC 550] is noticed, wherein it is observed as under: (SCC pp. 552-53, paras 6 &

9) "6. Section 3 of the said Act speaks of "land is used for any industrial purpose",

"land is used for any commercial purpose"

and "land is used for any other non- agricultural purpose". The emphasis is on the words "is used". For the purposes of levy of assessment on non-agricultural lands at the rate specified in the Schedule for land used for industrial purposes, therefore, there has to be a finding as a fact that the land is in fact in praesenti in use for an industrial purpose. The same would apply to a commercial purpose or any other non- agricultural purpose.

***

9. We are in no doubt whatever, therefore, that it is only land which is actually in use for an industrial purpose as

::: Downloaded on - 25/06/2024 20:31:57 :::CIS defined in the said Act that can be assessed to non-agricultural assessment at the rate

.

specified for land used for industrial

purposes. The wider meaning given to the word "used" in the judgment under challenge is untenable. Having regard to

the fact that the said Act is a taxing statute, no court is justified in imputing to the legislature an intention that it has not clearly expressed in the language it has

employed." (emphasis supplied)

18. The Hon'ble Supreme Court further held

that the provisions of the Commercial Courts Act are

to be strictly construed because if these are widely

construed, every dispute which is not a commercial

dispute will have to be filed before it and that would

defeat the very purpose of establishing the

Commercial Courts. It was observed: -

"13. The learned Senior Advocate for the appellant would, however, contend that a

strict interpretation as in the case of taxing statutes would not be appropriate in the instant case where the issue relates to jurisdiction. In that regard, the learned Senior Advocate has referred to the Statement of Objects and Reasons with which the Commercial Courts Act, 2015 is enacted so as to provide speedy disposal of high-value commercial disputes so as to create a positive image to the investors world about the independent and responsive Indian legal system. Hence, he contends that a purposive interpretation be made. It is contended that a wider purport and meaning is to be assigned while entertaining the suit and considering the dispute to be a commercial dispute. Having

::: Downloaded on - 25/06/2024 20:31:57 :::CIS taken note of the submission we feel that the very purpose for which the CC Act of 2015 has

.

been enacted would be defeated if every other

suit merely because it is filed before the Commercial Court is entertained. This is for the reason that the suits which are not actually

relating to commercial dispute but being filed merely because of the high value and with the intention of seeking early disposal would only clog the system and block the way for the

genuine commercial disputes which may have to be entertained by the Commercial Courts as intended by the lawmakers. In commercial disputes, as defined a special procedure is

provided for a class of litigation and a strict

procedure will have to be followed to entertain only that class of litigation in that jurisdiction. If the same is strictly interpreted it is not as if those excluded will be non-suited without any

remedy. The excluded class of litigation will in any event be entertained in the ordinary civil courts wherein the remedy has always existed.

14. In that view it is also necessary to carefully examine and entertain only disputes which

actually answer the definition "commercial disputes" as provided under the Act. In the instant case, as already taken note neither the

agreement between the parties refers to the nature of the immovable property being exclusively used for trade or commerce as on the date of the agreement nor is there any pleading to that effect in the plaint. Further, the very relief sought in the suit is for the execution of the mortgage deed which is in the nature of the specific performance of the terms of the Memorandum of Understanding without reference to the nature of the use of the immovable property in trade or commerce as on the date of the suit. Therefore, if all these aspects are kept in view, we are of the opinion that in the present facts, the High Court was justified in its conclusion arrived through the order dated 1-3-2019 [K.S. Infraspace LLP v.

::: Downloaded on - 25/06/2024 20:31:57 :::CIS Ambalal Sarabhai Enterprises Ltd., 2019 SCC OnLine Guj 1926] impugned herein. The

.

Commercial Court shall therefore return the

plaint indicating a date for its presentation before the Court having jurisdiction."

19. Therefore, the submission that the words

"arising out of" are to be widely construed cannot be

accepted.

20. Section 2(i)(xv) deals with the partnership

agreement and if this term is strictly construed, it can

only mean an existing partnership agreement and not

a partnership agreement that is likely to be made in

future. Such an interpretation will be as per the

judgment of Gujarat High in Vasu Healthcare (supra),

as approved by the Hon'ble Supreme Court, wherein

the agreement related to immovable property used

exclusively in trade or commerce was defined to mean

the property being used and not likely to be used.

21. The memorandum of understanding is

regarding the transfer of shares by some of the

partners in favour of the plaintiff and other persons

on receipt of the money. Therefore, the Memorandum

of Understanding is regarding a future partnership

that would come into existence after the terms and

::: Downloaded on - 25/06/2024 20:31:57 :::CIS conditions of the memorandum are completed and is

not covered under the partnership agreement.

.

22. The Memorandum of Understanding does

not show that it was regarding the construction. It

only mentions that defendants No.1 to 11 are a Firm for

carrying on the business of Real Estate, builders,

23.

r to Developers and colonizers.

Therefore, the submission that the

Memorandum of Understanding and the suit will fall

within the definition of the Commercial Courts Act is

not acceptable and consequently the submission that

the Court is bound to return the plaint for

presentation before the appropriate Court does not

arise in the present case.

24. It was submitted that partners can be

introduced and they can retire with the consent of all

other partners and since the Memorandum of

Understanding is not signed by all the partners,

therefore, there cannot be any introduction of new

partners or the retirement of existing partners. It is

not necessary to deal with this submission, because

Section 29 of the Partnership Act deals with the rights

of the transferee of the partner's interest and reads

::: Downloaded on - 25/06/2024 20:31:57 :::CIS that the transferee will be entitled to receive a share of

the profits of the Firm and not to interfere with it. It

.

was laid down by Patna High Court in Commr. of

Income-Tax v. Agardih Colliery Co., (1955) 27 ITR 540:

1955 SCC OnLine Pat 2: AIR 1955 Pat 225 that where the

persons entered into a second partnership contract

with some of the partners, they will not be inducted as

a partner but sub-partners. It was observed:-

5. Section 31(1) is also important. It says:

"Subject to contract between the partners and to the provisions of S. 30, no person shall be introduced as a partner into a firm

without the consent of all the existing partners."

6. In view of the statutory provision, it is clear

that the five persons who entered into the second contract of partnership with Ratilal

Manishanker Dave could not be held to be partners of Srimati Renu Bala Devi under the

first contract of partnership. The result of the second contract was to constitute what is called a sub-partnership between Ratilal Manishanker Dave and the five other persons. But this document would in no way affect the first contract of partnership executed on 15- 9-1944. The legal position has been explained very well at page 69 of Lindley's Law of Partnership, eleventh edition:

"A sub-partnership is as it were a partnership within a partnership: it presupposes the existence of a partnership to which it is itself subordinate. An agreement to share profits only constitutes a partnership between the parties to the agreement if, therefore, several persons are partners and one of them agrees to share

::: Downloaded on - 25/06/2024 20:31:57 :::CIS the profits derived by him with a stranger, this agreement does not make the stranger

.

a partner in the original firm. The result of

such an agreement is to constitute what is called a sub-partnership, that is to say, it makes the parties to its partners inter se,

but it in no way affects the other members of the principal firm. In the language of civilians, Socius mei socii, socius meus non est."

7. In -- 'Ex parte, Barrow', (1815) 2 Rose 252 (A), Lord Elden has explained the law on the point in a very clear manner:

"I take it to have been long since restablished, that a man may become a

partner with A where A and B are partners and yet not be a member of that partnership which existed between A and B. In the case of Sir Chas. Raymond, a banker

in the city, a Mr. Fletcher agreed with Sir Chas. Raymond that he should be interested so far as to receive a share of his profits of

the business, and which share he had a right to draw out from the firm of Raymond

& Co. But it was held that he was no partner in the partnership; had no demand against it; had no account in it; and that he must be

satisfied with a share of the profits arising and given to Sir Chas. Raymond."

8. This view is further borne out by a decision of the Calcutta High Court in -- 'Commr. of Income-tax, Central, Calcutta v. Dudwala and Co.', AIR 1950 Cal 315 (B). In that case, a partnership was constituted of the manager of a joint Hindu family representing the family and a stranger. A suit for the partition of the family was instituted by one of the members of the family which resulted in a compromise. The consent decree passed provided that each of the members of the joint family should have a certain share and further stated that the parties had twelve annas share in the partnership firm and each of the members

::: Downloaded on - 25/06/2024 20:31:57 :::CIS were entitled to the share of the partnership also according to the shares mentioned in the

.

decree. An application under Section 26-A of

the Income-tax Act was refused by the Income-tax Officer on the ground that as the joint family had come to an end it could not

form a partnership with a stranger unless and until the separate members of the family along with the stranger formed themselves into a partnership and applied for registration. It was

held by the Calcutta High Court upon these facts that the disruption of the joint family had no effect at all on the constitution of the firm or the manager's status as a partner of the r firm and that the partnership firm should be

registered under Section 26-A of the Income- tax Act.

25. A similar view was taken up by the Delhi

High Court in Mohit Saraf v. Rajiv K. Luthra, (2021) 1

HCC (Del) 478: 2021 SCC OnLine Del 52, wherein it was

observed:-

56. On a reading of Section 29 of the Partnership Act, it is clear that a transferee has

a very limited right under Section 29(1). The main partnership and the sub-partnership for the purpose of law are distinct and different entities. Even where a partner transfers his interest in the firm the transferor does not cease to become a partner nor does the transferee become a partner in the firm.

(Ref: Sunku Munuswami Chettiar v. Sunku Narasimhalu Chettiar [Sunku Munuswami Chettiar v. Sunku Narasimhalu Chettiar, (1958) 2 Mad LJ 233] ). In this regard, the counsels for the petitioner are justified in relying upon the Supreme Court judgment in CIT v. B. Posetty & Co. [CIT v. B. Posetty & Co., (1996) 11 SCC 11].

::: Downloaded on - 25/06/2024 20:31:57 :::CIS The relevant portion of the judgment reads as under:

.

"8. Dealing with sub-partnership and its

validity, S.T. Desai on The Law of Partnership in India (6th ed.) at p. 152, states the law, thus:

'Sub-partnership may arise when as a result of an agreement between a partner in a firm and a stranger the latter becomes jointly interested

with that partner so far as his share in the firm is concerned. Such mutual interests may amount to a partnership, but it is not a r partnership in the main firm, but

what is called a sub-partnership. Such an agreement will not have the effect of making the stranger a partner of the main firm. He will

have no demand against that firm, nor will he be entitled to ask for accounts of its business so long as

it continues to trade. It would hardly be questioned that a sub-

partner is not liable to the creditors of the main firm for any of its debts.'

Sub-partnerships have been recognised in India both before and after the present act came into force. In Murlidhar Himatsingka v. CIT [Murlidhar Himatsingka v. CIT, AIR 1967 SC 383: 1966 Supp (1) SCR 453 (1966) 62 ITR 323] the Supreme Court quoted with approval the following statement of the law from Lindley on Partnership:

"A sub-partnership is, as it were, a partnership within a partnership; it presupposes the existence of a partnership to which it is itself subordinate. An agreement to share profits only constitutes a partnership between the parties to the

::: Downloaded on - 25/06/2024 20:31:57 :::CIS agreement. If, therefore, several persons are partners and one of

.

them agrees to share the profits

derived by him with a stranger, this agreement does not make the stranger a partner in the original

firm. The result of such an agreement is to constitute what is called a sub-partnership, that is to say, it makes the parties to it

partners inter se, but it in no way affects the other members of the principal firm."

In this case, the lessee is Nizamabad

Group Sendhi Contractors (main firm).

The sub-partnership is a distinct and different firm. It is one recognised by law and it is not a partnership with the main firm. It will not have the effect of

making the partners in the sub-

partnership, partners of the main firm. In other words, the main firm, the

lessees and the sub-partnership are distinct and different. In light of the

above legal position, it cannot be said that either the sub-partnership in the instant case or any of its partners as a

partner, became a partner of the main firm, Nizamabad Group Sendhi Contractors. The inhibition contained in Section 14 of the Abkari Act will apply only in a case where the lessee declares any person as its partner. Here, the lessees, M/s. Nizamabad Group Sendhi Contractors had not declared either the sub-partnership or any other person, as its partner. In such circumstances, the inhibition contained in Section 14 of the Abkari Act cannot apply. It is true that Sri Posetty and 10 others formed the sub-partnership, "B. Posetty & Co." for a legitimate business purpose, to provide the requisite finance, on

::: Downloaded on - 25/06/2024 20:31:57 :::CIS condition of allotment of certain shares to them out of Mr Posettys share in the

.

main firm. The sub-partnership

financed one of its partners to make a capital investment in the main firm. Such an arrangement or agreement

between persons who formed a distinct and different firm is valid in law and to such a situation Section 14 of the Abkari Act is not attracted; nor is there any

basis to hold that there was any contravention of the provisions of the said Act. The law recognises the formation of sub-partnership. The main r partnership and the sub-partnership are,

for the purpose of law, distinct and different entities. Registration cannot be refused to the sub-partnership on the ground that one of the partners of the

main firm had agreed to share the profits received by him from the firm, with a stranger or strangers (members

of the sub-partnership) since the agreement does not make the stranger

or strangers or the sub-partnership firm, a partner in the original firm and such an arrangement or agreement does

not affect either the main firm or its other members, in any way...."

(emphasis supplied)

57. The counsels for the respondent have in fact relied upon the judgment of the Karnataka High Court in Mushtaque & Co. v. CIT [Mushtaque & Co. v. CIT, 1970 SCC OnLine Kar 245 : (1972) 84 ITR 561], in support of their submission that the respondent has the power to introduce partners into the Delhi Corporate Firm. The said judgment nowhere gives unilateral power to a partner to introduce a partner to the partnership firm. In fact, by referring to Sections 30 and 31 of the Partnership Act, it is held in the said judgment that no person shall be admitted to the

::: Downloaded on - 25/06/2024 20:31:57 :::CIS partnership of an existing firm without the consent of the existing partners. The judgment

.

is of no help to the respondent.

26. Therefore, a sub-partnership Firm will

come into existence with the persons who have signed

the Memorandum of Understanding and the plaintiff

and other persons will have the right under Section 29

even if the plaintiff will not be able to avail the rights

under Sections 31 and 32 of the Partnership Act.

Hence, it cannot be said that the plaint does not

disclose any cause of action to seek specific

performance of the Memorandum of Understanding

executed by the defendants.

27. It was submitted that the agreement was

not signed by the managing partner. There is no

requirement to do so, as Sections 18 and 19 of the

Partnership Act make the partner an agent of the Firm

and provide an implied authority of the partner as an

agent of the Firm to act on behalf of the Firm.

Moreover, in the present case, the Memorandum of

Understanding will constitute the transfer of the

shares of the persons signing it and need not be

signed on behalf of the Firm.

::: Downloaded on - 25/06/2024 20:31:57 :::CIS 28. It was submitted that as per the plaint, the

plaintiff had filed his previous suit seeking an

.

injunction and the present suit will be barred by the

principle of Order 2 Rule 2 of CPC. This submission

cannot be accepted. It was laid down by the Hon'ble

Supreme Court in Gurbux Singh v. Bhooralal, (1964) 7

SCR 831: AIR 1964 SC 1810 that bar under Order 2 Rule 2

of CPC cannot be invoked without filing the copies of

the pleadings. It was observed: -

"7. Learned Counsel for the appellant, however, urged that in his plaint in the present

suit, the respondent had specifically referred to the previous suit having been for mesne profits and that as mesne profits could not be

claimed except from a trespasser there should also have been an allegation in the previous

suit that the defendant was a trespasser in wrongful possession of the property and that alone could have been the basis for claiming

mesne profits. We are unable to accept this argument. In the first place, it is admitted that the plaint in the present suit was in Hindi and that the word 'mesne profits' is an English translation of some expression used in the original. The original of the plaint is not before us and so it is not possible to verify whether the expression 'mesne profits' is an accurate translation of the expression in the original plaint. This apart, we consider that learned Counsel's argument must be rejected for a more basic reason. Just as in the case of a plea of res judicata which cannot be established in the absence of the record of the judgment and decree which is pleaded as estoppel, we consider that a plea under Order 2 Rule 2 of the

::: Downloaded on - 25/06/2024 20:31:57 :::CIS Civil Procedure Code cannot be made out except on proof of the plaint in the previous

.

suit the filing of which is said to create the bar.

As the plea is basically founded on the identity of the cause of action in the two suits the defence which raises the bar has necessarily to

establish the cause of action in the previous suit. The cause of action would be the facts which the plaintiff had then alleged to support the right to the relief that he claimed. Without

placing before the Court the plaint in which those facts were alleged, the defendant cannot invite the Court to speculate or infer by a process of deduction what those facts might be

with reference to the reliefs which were then

claimed. It is not impossible that reliefs were claimed without the necessary averments to justify their grant. From the mere use of the words 'mesne profits' therefore one need not

necessarily infer that the possession of the defendant was alleged to be wrongful. It is also possible that the expression 'mesne profits'

has been used in the present plaint without a proper appreciation of its significance in law.

What matters is not the characterisation of the particular sum demanded but what in substance is the allegation on which the claim

to the sum was based and as regards the legal relationship on the basis of which that relief was sought. It is because of these reasons that we consider that a plea based on the existence of a former pleading cannot be entertained when the pleading on which it rests has not been produced. We therefore consider that the order of remand passed by the learned Additional District Judge which was confirmed by the learned Judge in the High Court was right. The merits of the suit have yet to be tried and this has been directed by the order of remand which we are affirming."

::: Downloaded on - 25/06/2024 20:31:57 :::CIS 29. A similar view was taken in Bengal

Waterproof Ltd. v. Bombay Waterproof Mfg. Co., (1997) 1

.

SCC 99, wherein it was held:-

"7. A mere look at the said provisions shows

that once the plaintiff comes to a court of law for getting any redress basing his case on an existing cause of action he must include in his suit the whole claim pertaining to that cause of

action. But if he gives up a part of the claim based on the said cause of action or omits to sue in connection with the same then he

cannot subsequently resurrect the said claim based on the same cause of action. So far as

sub-rule (3) of Rule 2 of Order 2 CPC is concerned, bar of which appealed to both the courts below, before the second suit of the

plaintiff can be held to be barred by the same it must be shown that the second suit is based on the same cause of action on which the earlier

suit was based and if the cause of action is the same in both the suits and if in the earlier suit

plaintiff had not sued for any of the reliefs available to it on the basis of that cause of action, the reliefs which it had failed to press

in service in that suit cannot be subsequently prayed for except with the leave of the court. It must, therefore, be shown by the defendants for supporting their plea of bar of Order 2, Rule 2, sub-rule (3) that the second suit of the plaintiff filed in 1982 is based on the same cause of action on which its earlier suit of 1980 was based and that because it had not prayed for any relief on the ground of passing off action and it had not obtained leave of the court in that connection, it cannot sue for that relief in the present second suit. So far as this plea of the defendants is concerned there is a threshold bar against them for their failure to bring on record the pleadings of the earlier suit which unfortunately has not been

::: Downloaded on - 25/06/2024 20:31:57 :::CIS properly appreciated by the courts below. A Constitution Bench of this Court in the case

.

of Gurbux Singh v. Bhooralal [(1964) 7 SCR 831:

AIR 1964 SC 1810] speaking through Ayyangar, J. in this connection has laid down as under:

"In order that a plea of a bar under Order

2, Rule 2(3), Civil Procedure Code should succeed the defendant who raises the plea must make out (1) that the second suit was in respect of the same cause of

action as that on which the previous suit was based, (2) that in respect of that cause of action, the plaintiff was entitled to more than one relief, (3) that being r thus entitled to more than one relief the

plaintiff, without leave obtained from the Court, omitted to sue for the relief for which the second suit had been filed. From this analysis it would be seen that

the defendant would have to establish primarily and to start with, the precise cause of action upon which the previous

suit was filed, unless there is an identity between the cause of action on which

the earlier suit was filed and that on which the claim in the later suit is based there would be no scope for the

application of the bar. No doubt, a relief which is sought in a plaint could ordinarily be traceable to a particular cause of action but this might, by no means, be the universal rule. As the plea is a technical bar it has to be established satisfactorily and cannot be presumed merely on the basis of inferential reasoning. It is for this reason that we consider that a plea of a bar under Order 2, Rule 2, Civil Procedure Code can be established only if the defendant files in evidence the pleadings in the previous suit and thereby proves to the Court the identity of the cause of action in the two suits. It is common ground that the

::: Downloaded on - 25/06/2024 20:31:57 :::CIS pleadings in C.S. No. 28 of 1950 were not filed by the appellant in the present suit

.

as evidence in support of his plea under

Order 2, Rule 2, Civil Procedure Code. The learned trial Judge, however, without these pleadings being on the

record inferred what the cause of action should have been from the reference to the previous suit contained in the plaint as a matter of deduction. At the stage of

the appeal the learned District Judge noticed this lacuna in the appellant's case and pointed out, in our opinion rightly, that without the plaint in the r previous suit being on the record, a plea

of a bar under Order 2, Rule 2, Civil Procedure Code was not maintainable."

8. In view of the aforesaid authoritative pronouncement of the Constitution Bench of

this Court the learned trial Judge as well as the learned Single Judge of the High Court ought to have held that the plea raised by the

defendants in the present case is barred at the threshold as the defendants had not produced

on the record of the trial court the pleadings in the first suit. Thus there is a complete bar against the defendants from raising the bar of

Order 2, Rule 2, sub-rule (3) against the plaintiff in the present case. In this connection, we may refer to one submission made by the learned counsel for the defendants which appealed to the learned Single Judge of the High Court. He submitted that the averments in the second suit of the plaintiff were that the first suit was misconceived and proper relief was not prayed for. Therefore, it can be inferred that the second suit was hit by the bar of Order 2, Rule 2, sub-rule (3) CPC and he further submitted that at least in the counter filed in reply to the special leave petition the defendants have produced the copy of the plaint in the first suit. We fail to appreciate how this effort on the

::: Downloaded on - 25/06/2024 20:31:57 :::CIS part of the defendants can be of any avail to them. Firstly, the Constitution Bench of this

.

Court in the Gurbux Singh case [(1964) 7 SCR

831: AIR 1964 SC 1810] has clearly ruled that there cannot be any inference about the bar of Order 2, Rule 2, sub-rule (3) CPC which may be

culled out from plaint in the second case and secondly once the plea of bar of Order 2, Rule 2, sub-rule (3) was not available to the defendants in the suit in the absence of the

pleadings in the earlier suit being brought on the record by them in support of their case before the trial court they had missed the bus especially when even before the High Court no r attempt was made by the defendants to

produce the pleadings in the earlier suit by way of an application for additional evidence. Therefore, it is too late in the day for the defendants to contend that along with counter

in the special leave petition before us they had produced a copy of the plaint in the earlier suit. In the light of the clear pronouncement of

the Constitution Bench in the case of Gurbux Singh [(1964) 7 SCR 831: AIR 1964 SC 1810], it

must be held that it was not open to the defendants to raise the contention of the bar of Order 2, Rule 2, sub-rule (3) CPC in the present

case and, therefore, the learned Single Judge of the High Court was clearly in error in non- suiting the plaintiff on that ground.

30. This position was reiterated in S. Nazir

Ahmad Vs. State Bank of Mysore 2007 (11) SCC 75, and it

was held:-

9. Now, we come to the merit of the contention of the appellant that the present suit is hit by Order 2 Rule 2 of the Code in view of the fact that the plaintiff omitted to claim relief based on the mortgage, in the earlier suit OS No. 131 of 1984. Obviously, the burden to establish this plea was on the appellant. The appellant has

::: Downloaded on - 25/06/2024 20:31:57 :::CIS not even cared to produce the plaint in the earlier suit to show what exactly was the cause

.

of action put in the suit by the Bank in that

suit. That the production of pleadings is a must is clear from the decisions of this Court in Gurbux Singh v. Bhooralal [AIR 1964 SC 1810 :

(1964) 7 SCR 831] and Bengal Waterproof Ltd. v. Bombay Waterproof Mfg. Co. [(1997) 1 SCC 99: AIR 1997 SC 1398: 1996 Supp (8) SCR 695] From the present plaint, especially Paras 10 to

12 thereof, it is seen that the Bank had earlier sued for recovery of the loan with interest thereon as a money suit. No relief was claimed for recovery of the money on the foot of the

equitable mortgage. In that suit, the Bank

appears to have attempted in execution, to bring the mortgaged properties to sale. The appellant had objected that the suit not being on the mortgage, the mortgaged properties

could not be sold in execution without an attachment. That objection was upheld. The Bank was therefore suing in enforcement of

the mortgage by deposit of title deeds by the appellant.

31. It was laid down by the Hon'ble Supreme

Court in Syed Mohd. SalieLabbai v. Mohd. Hanifa, (1976)

4 SCC 780, that the respective pleadings of the parties

in the previous suit have to be brought on record to

determine the case of the parties. The recitals in the

pleadings cannot be inferred from the judgment. It

was observed (at page 790):

"8. In the instant case according to the plaintiffs-respondents, the identity of the subject matter in the present suit is quite different from the one which was adjudicated upon in the suits which formed the basis of the

::: Downloaded on - 25/06/2024 20:31:57 :::CIS previous litigation. In our opinion, the best method to decide the question of res judicata

.

is first to determine the case of the parties as

put forward in their respective pleadings of their previous suits and then to find out as to what had been decided by the judgments

which operate as res judicata. Unfortunately however in this case the pleadings of the suits instituted by the parties have not at all been filed and we have to rely upon the facts as

mentioned in the judgments themselves. It is well settled that pleadings cannot be proved merely by recitals of the allegations mentioned in the judgment."

32.

In the present case, the pleadings in the

previous suit have not been brought on record;

therefore, it cannot be said that the provisions of

Order 2 Rule 2 will apply to the present case.

33. It was further submitted that the suit is

barred by limitation. The limitation has to be counted

from the date specified in the Memorandum of

Understanding and if so counted, it will start running

from 26.9.2019 when the amount of 4,16,00,000/-

was to be transferred. The present suit was filed on

4.5.2023 and is hopelessly barred by limitation. This

submission cannot be accepted. It was laid down by

the Hon'ble Supreme Court in Hardesh Ores (P) Ltd. v.

Hede and Co., (2007) 5 SCC 614: 2007 SCC OnLine SC 703

that the plaint can be rejected under Order 7 Rule 11 of

::: Downloaded on - 25/06/2024 20:31:57 :::CIS CPC if it appears to be barred by limitation from the

plain reading of the plaint. It was observed:

.

25. The language of Order 7 Rule 11 CPC is quite clear and unambiguous. The plaint can

be rejected on the ground of limitation only where the suit appears from the statement in the plaint to be barred by any law. Mr Nariman did not dispute that "law" within the meaning of clause (d) of Order 7 Rule 11

must include the law of limitation as well. It is well settled that whether a plaint discloses a cause of action is essentially a question of rfact, but whether it does or does not must be

found out from reading the plaint itself. For the said purpose the averments made in the plaint in their entirety must be held to be correct. The test is whether the averments

made in the plaint if taken to be correct in their entirety, a decree would be passed. The averments made in the plaint as a whole have

to be seen to find out whether clause (d) of Rule 11 of Order 7 is applicable. It is not

permissible to cull out a sentence or a passage and to read it out of the context in isolation.

Although it is the substance and not merely

the form that has to be looked into, the pleading has to be construed as it stands without addition or subtraction of words or change of its apparent grammatical sense. As observed earlier, the language of clause (d) is quite clear but if any authority is required, one may usefully refer to the judgments of this Court in Liverpool & London S.P. & I Assn. Ltd. v. M.V. Sea Success I [(2004) 9 SCC 512] and Popat and Kotecha Property v. State Bank of India Staff Assn. [(2005) 7 SCC 510]

34. A similar view was taken in Nusli Neville

Wadia v. Ivory Properties, (2020) 6 SCC 557: (2020) 3

::: Downloaded on - 25/06/2024 20:31:57 :::CIS SCC (Civ) 671: 2019 SCC OnLine SC 1313 wherein it was

observed:

.

67. In Vaish Aggarwal Panchayat v. Inder Kumar [Vaish Aggarwal Panchayat v. Inder

Kumar, (2020) 12 SCC 809: 2015 SCC OnLine SC 751: AIR 2015 SC 3357], the question came up for consideration of rejection of the plaint under Order 7 Rule 11 on the ground that same being barred by limitation. On mere ex-facie

reading of the plaint, it could not be held that the suit was barred by time. The question of limitation becomes a mixed question of facts r and law and cannot be decided as a

preliminary issue as the framing of issues and taking evidence was necessary.

68. In our opinion, it cannot be laid down as a proposition of law under Order 7 Rule 11(d)

that the plaint cannot be rejected as barred by limitation. It can be said that it is permissible to do so mainly in a case where the plaint

averment itself indicates the cause of action to be barred by limitation and no further

evidence is required to adjudicate the issue.

69. In Hareendran v. Sukumaran [Hareendran v.

Sukumaran, (2018) 14 SCC 187 : (2018) 4 SCC

(Civ) 510], this Court has laid down that question of limitation in the case being a mixed question of law and facts, could not have been decided as a preliminary issue. The provision under which a plaint can be rejected is provided in Order 7 Rule 11(d). The language used in Order 7 Rule 11 is where averments made in the plaint does not disclose a cause of action; relief claimed is undervalued, and the plaint is not corrected despite the direction of the Court; plaint is insufficiently stamped, and despite the Court's order the plaintiff has failed to supply the requisite stamp duty; where the suit appears from the statement in the plaint to be barred by any law; where it is not filed in duplicate; and where the plaintiff

::: Downloaded on - 25/06/2024 20:31:57 :::CIS fails to comply with the provisions of Rule 9. What is of significance under Order 7 Rule 11 is

.

that from the averments of the plaint itself,

the suit is barred by any law and it would include limitation also including bar created by any other law for the time being in force.

For the rejection of the plaint, averments made by the defendant in the written statement or otherwise cannot be seen, only the averments of the plaint are material and

can be taken into consideration and no other evidence.

70. The question concerning Order 7 Rule 11 came up for consideration in Ramesh B.

Desai v. Bipin Vadilal Mehta [Ramesh B.

Desai v. Bipin Vadilal Mehta, (2006) 5 SCC 638], as to the determination of the question of limitation as a preliminary issue. The Court observed that the starting point of limitation

has to be ascertained on facts in every case. A plea of limitation cannot be decided as an abstract principle of law divorced from the

facts for rejection of the plaint under Order 7 Rule 11(d). In the case of a disputed question of

fact, the question of limitation cannot be decided as a preliminary issue without a decision on facts based on the evidence that

has to be adduced by the parties. The Court has no jurisdiction under Order 14 Rule 2 to decide a mixed question of law and facts as a preliminary issue. The following observations have been made: (SCC p. 650, para 13) "13. Sub-rule (2) of Order 14 Rule 2 CPC lays down that where issues both of law and fact arise in the same suit, and the court is of the opinion that the case or any part thereof may be disposed of on an issue of law only, it may try that issue first if that issue relates to (a) the jurisdiction of the court, or (b) a bar to the suit created by any law for the time being in force. The provisions of this Rule came up for consideration before this Court in S.S.

::: Downloaded on - 25/06/2024 20:31:57 :::CIS Khanna v. F.J. Dillon [S.S. Khanna v. F.J. Dillon, AIR 1964 SC 497] and it was held as

.

under (AIR pp. 502-03, para 18: SCR p. 421)

'18. ... Under Order 14 Rule 2, Code of Civil Procedure where issues both of law and of fact arise in the same suit, and

the court is of the opinion that the case or any part thereof may be disposed of on the issues of law only, it shall try those issues first, and for that purpose

may, if it thinks fit, postpone the settlement of the issues of fact until after the issues of law have been determined. The jurisdiction to try r issues of law apart from the issues of

fact may be exercised only where in the opinion of the court the whole suit may be disposed of on the issues of law alone, but the Code confers no jurisdiction

upon the court to try a suit on mixed issues of law and fact as preliminary issues. Normally all the issues in a suit

should be tried by the court; not to do so, especially when the decision on

issues even of law depends upon the decision of issues of fact, would result in a lopsided trial of the suit.'

Though there has been a slight amendment in the language of Order 14 Rule 2 CPC by the amending Act, 1976 the principle enunciated in the above-quoted decision still holds good and there can be no departure from the principle that the Code confers no jurisdiction upon the court to try a suit on mixed issues of law and fact as a preliminary issue and where the decision on issue of law depends upon decision of fact, it cannot be tried as a preliminary issue."

35. The Court has to see the averments in the

plaint to determine if the suit is within limitation or

::: Downloaded on - 25/06/2024 20:31:57 :::CIS not. The plaintiff has stated in para-18 that the cause

of action arose on 30.9.2018 when the agreement was

.

executed, in the year 2018-19 when the payments

were made, in January 2020 when the plaintiff offered

the balance payment, in August 2022 when the

plaintiff approached the defendant to receive the

balance amount and in October and November 2022,

when the defendants threatened to change the nature

and in January 2023 when the defendants started

illegal plotting of the land. If these averments are

considered as correct, the cause of action can be said

to have commenced in the year October-November,

2022 when the defendants acted contrary to the

Memorandum of Understanding and the suit filed in

the year 2023 will be within limitation.

36. It was submitted that all the parties to the

Memorandum of Understanding are not before the

Court and the agreement cannot be enforced. This

question is regarding the merits of the case which

cannot be seen while deciding the application under

Order VII Rule 11 of CPC.

::: Downloaded on - 25/06/2024 20:31:57 :::CIS 37. Therefore, the plaint cannot be ordered to

be rejected, hence, the present applications fail and

.

the same are dismissed.

38. Be put up for admission/denial of

documents before the learned Additional Registrar

(Judicial) on the date to be fixed by him.

r to (Rakesh Kainthla) Judge

25th June, 2024 (Chander)

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