IN THE HIGH COURT OF DELHI AT NEW DELHI CS (OS) 1736 of [SECTION]01[SECTION] Reserved on: October [SECTION]8, [SECTION]013 Decision on: November [SECTION]0, [SECTION]013 SANJAY SETHI & ANR. Plaintiffs Through: Mr. [ENTITY], Senior Advocate with Mr. [ENTITY], Ms. [ENTITY], Ms. [ENTITY] and Mr. [ENTITY], Advocates. versus DEEPAK SETHI & ANR. Defendants Through: Mr. [ENTITY] with Mr. [ENTITY] and Mr. [ENTITY], Advocates for D-1. Mr. [ENTITY], Advocate for D-[SECTION]. CORAM: JUSTICE [ENTITY] JUDGMENT
[SECTION]0.11.[SECTION]013 I.A. No. [SECTION][SECTION]335 of [SECTION]01[SECTION] (u/O VII R-11 and u/O I R-9 [ACT] by D-1) with IA 17003 of [SECTION]013 (by D-1 u/[SECTION] [ACT])
1. The background to these applications is that Mr. [ENTITY] (Plaintiff No. 1) and his mother, Mrs. [ENTITY] (Plaintiff No. [SECTION]) have filed the above suit against his brother Mr. [ENTITY] (Defendant No. 1) and Mr. [ENTITY], Advocate (Defendant No. [SECTION]) seeking specific performance of an agreement dated 6th January [SECTION]010, and for an injunction restraining Defendant No. 1 from acting against the interests of the Plaintiffs and their companies and a mandatory injunction directing Defendant No. [SECTION] to hand over the original share certificates and transfer deeds to Plaintiff No. 1 and/or his nominee.
[SECTION]. It is stated that Plaintiff No. 1 and Defendant No. 1 were carrying on business of manufacturing, installation and commissioning services of equipment for LPG Bottling Plants, testing equipment and various RVI jobs through private limited companies, viz., (a) Laycock Engineers Pvt. Ltd. ['LEPL'] and (b) International Corporate Signs Pvt. Ltd. ['ICSPL']. It is stated that Plaintiff No. 1 along with Defendant No. 1 were on the Board of Directors ('BoDs') of both the above companies.
3. Some time towards the end of [SECTION]009, differences arose between the brothers and it was decided that they would part ways in an amicable manner. According to the Plaintiffs, it was agreed that the Defendant No. [SECTION] would resign as a director of LEPL and ICSPL and also sell/transfer shares in the said companies. The Plaintiffs claim that an oral agreement was arrived at after several rounds of discussions and negotiations, including discussions held in the presence of late Mr. [ENTITY] and Mr. [ENTITY]. A Memorandum of Understanding ('[ACT]') was executed between Plaintiff No. 1 and Defendant No. 1 on 6th January [SECTION]010. Inter alia, it was agreed that:
(i) Defendant No. 1 would resign from LEPL and ICSPL and retire from the business. All liabilities were to be discharged by Plaintiffs 1 and [SECTION]. Defendant No. 1 was to have no right, title and interest, including the liabilities and assets in the said two companies.
(ii) In due course, Plaintiff No. 1 was to get the residential house of Defendant No. 1 released by settling the liabilities of the bank.
The title deeds of the house were to be handed over to Defendant No. 1 on or before 6th January [SECTION]011.
(iii) Defendant No.1 was to transfer and assign his entire shareholding in both companies and sign the share transfer deeds or his nominated parties. He was also to resign as full time Director of both companies and cease to be involved in dealing with the companies thereafter.
(iv) The signed transfer deeds were to be kept by Defendant No. [SECTION] in trust and were to be handed over to Plaintiff No.1 upon the entire payment of Rs.1.[SECTION]5 crores being made to Defendant No.1.
4. It is stated that pursuant to the above [ACT], Defendant No. 1 resigned from the BoDs of both companies and Form 3[SECTION] was filed with the Registrar of Companies (ROC), National Capital Territory of Delhi and Haryana. He is also stated to have parted possession with his original share certificates which were then kept by Defendant No. [SECTION] as an escrow agent.
5. The Plaintiffs state that a sum of Rs. 50 lakhs was paid to Defendant No. 1 in two equal instalments of Rs. [SECTION]5 lakhs each by cheque dated 6th January [SECTION]010 at the time of signing of the agreement and another cheque dated 6th April [SECTION]010 both which were encashed by Defendant No. 1. It is further stated that a sum of Rs. 1 lakh by way of four equal instalments of Rs. [SECTION]5,000 along with sum of Rs. 6,51,000 was also paid by the Plaintiffs to Defendant No.1 towards fulfilment of the other obligations under the [ACT].
6. It is stated that property at 355, Bhera Enclave, Delhi owned by Defendant No. 1 was mortgaged as security to avail loan by the two companies. It was the obligation of Plaintiff No. 1 to settle the liabilities of the bank and get the title deeds released by 6th January [SECTION]011. According to the Plaintiffs, it was subsequently discovered that Defendant No. 1 had, in addition to the loan availed of by the two companies, also availed a housing loan against the said property. Defendant No.1 insisted that this liability should also be discharged by Plaintiff No. 1. To avoid further disputes, Plaintiff No. 1 issued a post- dated cheque (PDC) dated 6th July [SECTION]010 for Rs. [SECTION]5 lakhs to replace an earlier PDC for Rs. [SECTION]5 lakhs.
7. According to the Plaintiffs, even while they were making payments to Defendant No. 1, he started filing various complaints to the authorities and departments to arm-twist the Plaintiffs. On 7th June [SECTION]010, a legal notice was sent to Defendant No. 1 to restrain him from making false and frivolous complaints. It is stated that although Plaintiff No. 1 was willing to honour his commitments under the [ACT], Defendant No.1, by a reply dated [SECTION]0th June [SECTION]010, denied the execution of the [ACT] and suggested that his consent to the [ACT] had been under duress and misrepresentation. In the same letter, however, Defendant No. 1 is stated to have admitted to the execution of the letter, thus taking contradictory stands.
8. It is stated that on 6th July [SECTION]010, Defendant No. 1 wrote to the State Bank of Bikaner and Jaipur acknowledging the [ACT] and seeking removal of personal guarantees given by him for ICSPL's loans. According to Plaintiff No. 1, Defendant No.1 had, in breach of the obligations under the [ACT], unilaterally got his personal guarantees discharged from the bank with regard to the property at 355, Bhera Enclave, Delhi. This resulted in cessation/reduction of the credit limit enjoyed by the companies thus adversely affecting their business and operations. Plaintiff No. 1 required some time to comply with his obligations as the immediate release of personal guarantee and mortgage of the property of Defendant No. 1 would severly curtail the credit facilities. On 9th July [SECTION]010, Defendant No. 1 wrote to Defendant No. [SECTION] restraining him from releasing share certificates/transfer deeds to Plaintiff No. 1. It is further stated that Defendant No. 1 presented for payment the third cheque issued by the Plaintiffs as part consideration, despite being requested not to do so and this resulted in dishonour of the said cheque.
9. The Plaintiffs state that Plaintiff No. 1 has, time and again, informed Defendant No. 1 that he was ready and willing to perform his part of contract and to pay the balance sum of Rs. 70 lakhs and has been calling upon Defendant No. 1 to perform his obligations and release the original share certificates and transfer deeds. Defendant No. 1 not only refused to do so but filed complaints with the Indraprastha Gas Corporation Pvt. Ltd. and ROC. Defendant No. 1 is also alleged to have prematurely encashed Rs. 4,66,5[SECTION]0 from the account of ICSPL thus causing it loss of reputation. Defendant No. 1 filed Company Petition Nos. 3[SECTION] and 33 (ND) of [SECTION]011 before the Company Law Board (CLB) under [SECTION] and [SECTION] of the [ACT]. The CLB referred the parties to mediation. However, the mediation failed. In the above circumstances, the above suit was filed.
10. Summons in the suit were directed to be issued on 31st May [SECTION]01[SECTION]. On that date, while directing notice in IA 11010 of [SECTION]01[SECTION] under [SECTION] and [SECTION] [ACT], the Court recorded the statement of the Plaintiffs that they were willing to deposit Rs. 76 lakhs in terms of the [ACT] within two weeks. Subject to such deposit, Defendant No. 1 was restrained from acting contrary to the terms and conditions of the [ACT] till the next date. Also, Defendant No. [SECTION] was restrained from parting with the original share certificates, transfer deeds and other documents in his possession. On the next date, i.e., [SECTION][SECTION]nd August [SECTION]01[SECTION], it was noted that Defendant No. 1 had filed its written statement.
11. By an order dated 14th December [SECTION]01[SECTION], the Court decided the IA 11010 of [SECTION]010 under [SECTION] and [SECTION] [ACT] filed by the Plaintiffs and IA [SECTION][SECTION]334 of [SECTION]01[SECTION] filed by Defendant No. 1 under [SECTION] [ACT]. The Court, prima facie, was of the view that the Plaintiffs were not entitled to seek specific performance of the agreement dated 6th January [SECTION]010 "since they themselves sought to back out from their obligations under the said agreement by sending the notice dated 7th June, [SECTION]010 and stopping the payment of the cheque of Rs.[SECTION]0 lakhs which they had issued to Defendant no. 1 towards discharge of their obligations under the said MOU. That apart, the Plaintiffs also did not make payment of Rs.[SECTION]5,000/- per month towards the expenses to Defendant no.1 for 1[SECTION] months from January, [SECTION]010 to April, [SECTION]010 since only four payments were made during this period". Accordingly, it was directed that till such time that the applications filed by Defendant No. 1 before the CLB for restoration of his directorship are allowed, he would have no right to hold himself out to be the director of the companies but at the same time could not be restrained from holding himself out as a shareholder of the said companies. It was further stated that Defendant No. [SECTION] would part with possession of the share certificates and transfer deeds to the Plaintiff only if Defendant No. 1 was ready and willing to accept the balance amount in terms of the [ACT] from the Plaintiffs. The sum of Rs. 76 lakhs deposited by the Plaintiffs was directed to be returned to the Plaintiffs. It was clarified that it would be open to CLB to pass such orders as it may deem appropriate on the applications filed by Defendant No. 1 without being uninfluenced by the orders of the Court.
1[SECTION]. Against the aforementioned order dated 14th December [SECTION]01[SECTION], the Plaintiffs filed FAO (OS) 53 of [SECTION]013. The Division Bench in its order dated [SECTION]9th January [SECTION]013 noted that Defendant No. 1 had filed IA [SECTION][SECTION]335 of [SECTION]01[SECTION] under [SECTION] [ACT]. The Single Judge was directed to dispose of the said application and in the event of rejecting the said application to lay down a schedule to expedite the trial.
13. This Court has heard the submissions of Mr. [ENTITY], learned Senior counsel appearing for the Plaintiffs, Mr. [ENTITY], counsel for Defendant No. 1 and Mr. [ENTITY], counsel for Defendant No. [SECTION].
14. Learned counsel for Defendant No. 1 argued that the plaint did not disclose any cause of action to entitle the Plaintiffs to the relief of specific performance. It was submitted that the legal notice dated 7th June [SECTION]010 issued by the Plaintiff No. 1 showed that he had himself terminated the [ACT]. Defendant No. 1 was also not paid the monthy payments since May [SECTION]010.
The cheques handed over to Defendant No. 1 were dishonoured. It was submitted that the [ACT] envisaged performance of reciprocal promises by the parties. Plaintiff No.1 failed to perform his obligations under the [ACT]. His abandonment of the [ACT] demonstrated his lack of readiness and willingness to perform his part of the obligations. Reliance was also placed on the decisions in [PRECEDENT] ([SECTION]004) 9 SCC 51[SECTION]; Hardesh Ores Pvt. Ltd. v. M/s Hede & Company [SECTION]007 (7) SCALE 348 and Inspiration Clothes and U v. Colby International Ltd. 88 DLT ([SECTION]000) 696.
15. In reply, relying on the decisions in [PRECEDENT]; [PRECEDENT]; Pukhraj D. Jain v. G. Gopalakrishna AIR [SECTION]004 SC 3504; Rajya Tulsibhai Patel v. Benar Enterprise AIR 1988 Guj 4[SECTION] and Kailash Newar v, Satish Newar [SECTION]01[SECTION] (13[SECTION]) DRJ 460, learned counsel for Defendant No. 1 submitted that the Court was required to take into account the averments in the plaint as well as the documents filed by the Plaintiff to conclude whether any cause of action was disclosed for the grant of the reliefs as prayed for. It is submitted that with the parties already before the CLB, where the very same issues would be examined, and there was no occasion for the Court to even otherwise entertain the present suit.
16. Mr. [ENTITY], learned Senior counsel appearing for the Plaintiffs submitted that the plaint alone had to be examined for the purposes of determining whether it disclosed any cause of action. According to him, the plea of Defendant No. 1 at best raised a triable issue which could not be decided at the stage of the present application under [SECTION] [ACT]. Mr. [ENTITY] submitted that it could not be said that the plaint did not disclose any cause of action. Whether in fact the Plaintiffs were ready and willing to perform their part of the obligations would be a matter for evidence. As regards the legal notice dated 7th June [SECTION]010, it was submitted that whether the said letter constituted abandonment of the Plaintiffs' claims or whether the correspondence subsequent thereto reflected the Plaintiffs' readiness and willingness to perform their part of the obligations would again be a matter for trial. It was submitted that at this stage that the Court should not interfere under [SECTION] [ACT].
17. The present suit is based essentially on the [ACT]. The Plaintiffs are seeking specific performance of the [ACT]. In para [SECTION]5 of the plaint, it is stated that the Plaintiff "has always been and still is ready and willing to specifically perform the terms and conditions of the [ACT] dated 06.01.[SECTION]010 on his part of owhich the Defendant No. 1 has had notice". Strangely, however, as regards the legal notice dated 7th June [SECTION]010, para 1[SECTION] of the plaint states as under:
"1[SECTION]. That on 07.06.10 the then advocate for Plaintiff No. 1 wrote to the Defendant No.1 seeking to refrain the Defendant No.1 from making false and frivolous complaints and also to restrain the Defendant No. 1 from instigating third parties from making false complaints against the aforesaid Companies. The Plaintiff in the said letter dated 07.06.10 enumerated various instances of non-cooperation and breach/violation of the amicable oral settlement and terms and conditions as duly recorded in the [ACT] by the Defendant No. 1. The Plaintiff however informed the Defendant No. 1 that they were willing and ready to comply with the terms of the [ACT] but also demanded that the Defendant No. 1 also comply with his part of the agreed obligations and refrains from acting against the interest of the Companies."
18. Paras 1[SECTION] and 13 of the legal notice dated 7th June [SECTION]010 read as under:
"1[SECTION]. That by committing such acts, you have committed the breach of terms and conditions of the Memorandum of Understanding dated 06.01.[SECTION]010 and my client, therefore, is under no more any contractual obligation to further honour the commitments as made in the said MOU.
13. That a sum of Rs. [SECTION]0 lakhs as per the MOU is payable to you on 06.07.[SECTION]010 but in view of your above conduct, my client hereby calls upon you that since you have committed the breach of terms of the understanding, my client is not liable to get the said cheque honoured and you are called upon not to present the said cheque and the subsequent cheques, which will fall due in October, [SECTION]010 and January, [SECTION]011. My client is also not liable to pay a sum of Rs.[SECTION]5,000/- per month committed to be paid to you till December, [SECTION]010 for meetingout the monthly expenses."
19. There is no convincing explanation by by Plaintiff No. 1 as to why the above statements should not be construed as termination of the [ACT] by him. The Plaintiffs did not subsequently to resile from the above statements. The repeated assertion that Plaintiff No.1 is ready and willing to perform his part of the [ACT] runs contrary to the above statements made in the legal notice.
[SECTION]0. In [PRECEDENT], the Supreme Court held as under (563-565):
"141. In the instant case the 'Club' not only annexed certain documents with the plaint but also filed a large number of documents therewith. Those, documents having regard to [SECTION] of the [ACT] are required to be taken into consideration for the purpose of disposal of application under [SECTION] of the [ACT].
145. It may be true that [SECTION] although authorises the court to reject a plaint on failure on the part of the plaintiff to disclose a cause of action but the same would not mean that the averments made therein or a document upon which reliance has been placed although discloses a cause of action, the plaint would be rejected on the ground that such averments are not sufficient to prove the facts stated therein for the purpose of obtaining reliefs claimed in the suit. The approach adopted by the High Court, in this behalf, in our opinion, is not correct."
[SECTION]1. However, where the documents annexed to the plaint disclose that Plaintiff No.1 was not in fact ready and willing to perform his part of the obligatons under the contract, the Court cannot possibly ignore the documents and proceed only on the basis of the plaint. The documents must also be read as forming part of the plain itself for the purpose of [SECTION] [ACT]. If there are contradictory statements in the plaint and documents then it is for the Plaintiff to explain those contradictions. In the absence thereof, the Court will have to proceed on the basis that those contradictions remain on record.
[SECTION][SECTION]. An additional factor is the stop payment instruction issued by the Plaintiff No. 1 as regards cheque of Rs. [SECTION]0 lakhs issued by it to Defendant No. 1.The averment in the plaint in this regard is contained in para 17 which reads as under:
"17. That the Defendant No. 1 with a view to further harass the Plaintiff, presented the third cheque (replaced cheque) for payment of the part consideration despite being informed to not present the same for payment until an amicable resolution of the disputes, which had resulted from the malicious conduct of the Defendant No. 1. The Defendant No. 1 served a legal notice on the Plaintiff for the dishonor of the said cheque on 03.08.[SECTION]010. That the Plaintiff duly replied to the legal notice through his counsel on 07.08.[SECTION]010."
[SECTION]3. Again, there is no explanation in the plaint as to the circumstances under which the Plaintiff No. 1 stopped payment of the said cheque. It is difficult to accept the plea of the learned Senior counsel for the Plaintiffs that the Court must not pay heed to this application under [SECTION] [ACT] at this stage and draw conclusions only from the plaint.
[SECTION]4. Even on a cursory reading of the plaint, it does not satisfy the essential requirement of a suit for specific performance. Inter alia it fails to demonstrate the readiness and willingness of Plaintiff No. 1 to perform his part of the obligations under an agreement of which specific performance has been sought. The plaint fails to disclose a cause of action for the grant of the relief of specific performance.
[SECTION]5. In any event, the parties are before the CLB where the [ACT] and all other correspondence between the parties are about to be discussed. The issues that the Plaintiffs want this Court to examine would be covered by the disputes raised before the CLB.
[SECTION]6. For the aforementioned reasons, this Court is of the view that the plaint does not disclose any cause of action for the grant of the relief of specific performance or any of the incidental reliefs arising from the [ACT].
[SECTION]7. As already clarified by the earlier order dated 14th December [SECTION]01[SECTION], this will not preclude the CLB from examining the matter on its merits without being influenced by this order.
[SECTION]8. The plaint is accordingly rejected. The interim orders stand vacated. All pending applications are disposed of. The next dates before the Joint Registrar and the Court are cancelled.
[ENTITY], J.
NOVEMBER [SECTION]0, [SECTION]013 akg