IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE THOMAS P.JOSEPH FRIDAY, THE 15TH JULY 2011 / 24TH ASHADHA 1933 CRP.No. 857 of 2006() ------------------------------- AGAINST THE ORDER DATED 13/10/2006 IN IA.NO.747/ 2006 IN OS.NO.111/2006 of SUB COURT, SULTHAN BATHERY .................... REVN. PETITIONER(S): PETITIONERS-DEFENDANTS --------------------------------------------------------------------------- 1. DR.N.K.MOHAMMED BASHEER, 50 YEARS, S/O.LATE MOHAMMED MUSLIAR, NALLALAM DESOM, AREEKAD POST, KOZHIKODE-673 027. 2. C.K.MUMTHAS, AGED 44 YEARS, D/O.C.K.AHMEDKUTTY AND W/O.N.K.MOHAMMED BASHEER, NALLALAM DESOM, AREEKAD POST, KOZHIKODE-673 027. 3. LODESTAR HEALTH AND TOURISM (INDIA) PVT.LTD., REP. BY ITS MANAGING DIRECTOR, C.K.MUMTHAS, AGED 44 YEARS, D/O.C.K.AHMEDKUTTY AND W/O.N.K.MOHAMMED BASHEER, NALLALAM DESOM, AREEKAD POST, KOZHIKODE-673 027. BY SRI.V.CHITAMBARESH, SENIOR ADVOCATE BY ADVS. SRI P.R. VENKITESH SRI.JIJO PAUL SRI.BABU S. NAIR SRI.ABRAHAM SAMSON RESPONDENT(S): PLAINTIFF -------------------------------------------- DR.C.K.AHMED KUTTY, AGED 66 YEARS, S/O.LATE K.V.AHAMMED HAJI, 3511E, COTTONWOOD RD. KEARNEY, NEBRASKA, NE, USA, REP. BY HIS POWER OF ATTORNEY HOLDER P.E.MOHAMMED SHAMSUDDEEN, AGED 53 YEARS, S/O.LATE P.E.MOHAMMED BAVOO, KALOTH POST, KONDOTTY, MALAPPURAM DISTRICT. BY SRI.S.V.BALAKRISHNA IYER, SENIOR ADVOCATE THIS CIVIL REVISION PETITION HAVING BEEN FINALLY HEARD ON 15/07/2011, THE COURT ON THE SAME DAY PASSED THE FOLLOWING: sts THOMAS P JOSEPH, J. ---------------------------------------- C.R.P.No.857 of 2006 --------------------------------------- Dated this 15th day of July, 2011 ORDER Petitioners-defendants in O.S.No.111 of 2006 of the Court of learned Sub Judge, Sulthan Bathery made an attempt to nip the suit against them in the bud by taking recourse to Rule 11(a) and (d) of Order VII of the Code of Civil Procedure (for short, "the Code”). Learned Sub Judge nipped that attempt in the bud. Hence, this civil revision. 2. The parties are closely related - by blood and/or bond- first petitioner is the husband of the second petitioner. Second petitioner is the daughter of respondent. Third petitioner is said to be a private limited company of which petitioners 1 and 2 are the directors. Respondent, who claimed to be a person of Indian origin settled and living in the United States of America, a medical practitioner by profession claimed to have advanced certain amount to the first petitioner from his NRI account for acquisition of the suit property and claimed reliefs against petitioners such as, a declaration that petitioners hold the suit property in trust for and on behalf of the respondent, a consequential perpetual prohibitory injunction restraining petitioners, their agents or men from alienating, transferring or C.R.P.No.857 of 2006 -: 2 :- parting with the suit property wholly or in portions, from creating any charge or mortgage and from creating documents with respect to the suit property or any portion thereof, from selling, cutting or removing timber therefrom and from committing act of waste therein, a consequential mandatory injunction directing petitioners to take such steps as are legally necessary to bring in and incorporate respondent as a share holder and director of the third petitioner, the company with 90% of shares in it and its assets with the share of petitioners 1 and 2 being limited to 5% each failing which, to have the Court be pleased to act on behalf of petitioners 1 and 2 and take such lawful steps as are necessary to effectuate the said relief in favour of the respondent. Along with the plaint, respondent produced certain documents which included copy of the assignment deed executed by Van Ingen, a foreign national in favour of the third petitioner, company and two letters allegedly sent by the first petitioner to the respondent. The plaint was registered and summons was issued to the petitioners who appeared and filed I.A.No.747 of 2006 under Rule 11 of Order VII of the Code contending that the plaint does not disclose any cause of action and at any rate, the suit appears from the statement in the plaint to be barred by law. Reference was made on behalf of the petitioners to the relevant C.R.P.No.857 of 2006 -: 3 :- provisions of the Foreign Exchange Management Act, 1999 (for short, "the FEMA”) and the Regulations framed thereunder to contend that respondent being a Non Resident Indian (for short, "NRI”) is debarred either, from acquiring any plantation or agricultural land or, investing any amount in a company engaged in the business of the nature referred to in the relevant Regulations. It was contended that in the circumstance, none of the reliefs sought by the respondent could be granted and as such, the suit itself is barred. It was also contended that in the view of that, respondent had no cause of action against petitioners to sustain the suit. Learned Sub Judge held that the plaint cannot be rejected as requested for in I.A.No.747 of 2006. Learned Sub Judge while holding that the plaint did disclose a cause of action has also taken the view that even if it is ultimately to be held that respondent is not entitled to the reliefs prayed for, that does not mean that the suit is not maintainable. 3. Learned Senior Advocates, Sri.V.Chitambaresh and Sri.S.V,Balakrisha Iyer in their own inimitable style has addressed arguments at length on the various points canvassed by them. Learned Senior Advocate, Sri.V Chitambaresh has referred me to the scope and ambit of Rule 11 of Order VII of the Code and contended that an Activist Judge is the answer to C.R.P.No.857 of 2006 -: 4 :- frivolous suits – he is required to lift the veil created artistic pleadings in the plaint and find what exactly is the substance of the claim and the reliefs prayed for. If the reliefs prayed for cannot be allowed in view of the law in force, it must be held that the suit itself is not maintainable as is barred by such law. According to the learned Senior Advocate, having regard to the relevant provisions of the FEMA and the Regulations under it (which I will be adverting to in detail a bit later), respondent is not entitled to any of the reliefs prayed for in which case whatever pleaded in the plaint cannot confer a cause of action for the respondent to sue petitioners. It is argued that in such circumstances petitioners need not be dragged into Court to undergo the cumbersome procedure of a long drawn trial and ultimately get the suit dismissed. Learned Senior Advocate has argued that Rule 11 of Order VII of the Code is enacted to prevent vexatious and frivolous suits being brought into the Court and that if the Court is satisfied that the suit as brought either does not disclose a cause of action or, is barred by any law the plaint has to be rejected at the entry point itself. It is pointed out that the said function is to be exercised by the Court scrupulously before registering the plaint and even after summons is issued and before conclusion of trial, be it suo moto or on the request of C.R.P.No.857 of 2006 -: 5 :- the opposite party to the suit. It is contended that averments in the plaint would show that respondent is an Indian national resident in the United States (NRI) and his attempt was to acquire a coffee plantation or agricultural land which is prohibited under the law. It is pointed out that reliefs prayed for are to the effect that respondent be given 90% shares in third petitioner, company which is prohibited under the law. According to the learned Senior Advocate, a company being a juristic person cannot have any fiduciary relationship with a third party, the fiduciary relationship the company has, is only vis-a-vis its shareholders. Hence, it cannot be said that third petitioner, company was holding the property in trust for the respondent. It is contended that the principle of piercing the corporate veil of the company is available only when there is allegation of fraud but, in the present case request of respondent is that he may be given 90% of shares of the third petitioner, company in which case a plea of fraud cannot stand. Various decisions are cited in support of the above contentions. 4. In response, learned Senior Advocate, Sri.S.V.Balakrishna Iyer has contended that for a rejection of the plaint, be it before issue of summons or thereafter, what could be looked into is only the plaint and the documents if any, produced C.R.P.No.857 of 2006 -: 6 :- along with the plaint. The Court is not required or permitted to look into the defence pleaded by the defendants, not to say about any document that the defendants might rely upon. It is also contended that in deciding whether the plaint discloses a cause of action or not, no portion of the plaint can be truncated and looked into; instead the entire allegations in the plaint must be read as a whole. It is pointed out that reliefs prayed in the plaint is not part of the cause of action of the respondent and that even if it is assumed that some of the reliefs prayed for in the plaint are not allowable, if any one relief prayed for could be allowed, it cannot be said that the plaint does not disclose a cause of action or that the suit is barred by any law. According to the learned Senior Advocate, at the stage of rejection of plaint under Rule 11 of Order VII of the Code the Court is not required to go into intricate questions of law and/or fact which are matters to be relegated to the trial stage of the litigation. It is pointed out that even a juristic person like a company can have fiduciary relationship with third parties and that it is not merely in the case of fraud alone that the corporate veil could be lifted. In other permitted circumstance also it is within the power of Court to lift the corporate veil and find who exactly are the persons behind the company. It is submitted that none of the provisions of the C.R.P.No.857 of 2006 -: 7 :- FEMA or the Regulations framed thereunder could be invoked at this stage since respondent has not admitted that he is a NRI or that the suit property is either a coffee plantation or agricultural land. According to the learned Senior Advocate, these are disputed facts not required to be decided at the entry stage under Rule 11 of Order VII of the Code. Learned Senior Advocate contended that the plaint averments taken along with the letters first petitioner has sent to the respondent and produced along with the plaint would show that first respondent had prevailed upon, affectionately pressurised or as the learned Senior Advocate would contend, cunningly trapped the respondent to advance huge amount to the first petitioner on a promise that for the advantage of respondent the suit property will be acquired. The averments in the plaint as also the said letters would indicate that respondent was reposing much confidence in petitioners 1 and 2, that they made respondent believe that they would act for the benefit of respondent and that created a trust and an obligation annexed to the ownership of the land in question and hence provisions under Sec.88 of the Indian Trust Act applied. According to the learned Senior Advocate, even if it is assumed that respondent is not entitled to get any relief vis-a-vis the third petitioner, the company by getting shares C.R.P.No.857 of 2006 -: 8 :- as prayed for in the plaint, he is entitled to the declaration of trust and a consequential injunction restraining petitioners from doing any act affecting the said trust and the benefit that respondent is to get from the said trust. Learned Senior Advocate has placed reliance on various decisions and other authorities in support of the above contentions. 5. It is necessary to understand the scope of Rule 11 of Order VII of the Code. Under Sec.9 of the Code, a litigant having a grievance of a civil nature has, independently of any statute a right to institute a suit in a civil Court unless its cognizance is either expressly or impliedly barred. At two stages a defendant, before the suit goes for trial can resist the suit against him. The first is under Rule 11 of Order VII and the second, under Rule 2 (2) of Order XIV of the Code. Now I am concerned with the question of cause of action and bar to the suit created by any law in force under Rule II of Order VII. The relevant provisions in Rule 11 of Order VII and Rule 2(2) of Order XIV of the Code are as under: Order VII, Rule 11 Order XIV, Rule 2(2) Rejection of Plaint- the plaint 2(2) Where issues both of law shall be rejected in the following and of fact arise in the same cases:- suit, and the Court is of opinion that the case or any part thereof C.R.P.No.857 of 2006 -: 9 :- (a) where it does not disclose may be disposed of on an issue of a cause of action; law only, it may try that issue first (b) ....................... if that issue relates to,- (c) ....................... (a) ............................. (d) where the suit appears from (b) a bar to the suit created by the statement in the plaint to any law for the time being be barred by any law. in force. At the stage of Rule 11 of Order VII, only the averments in the plaint and documents produced along with the plaint which could be treated as part of the pleadings alone can be looked into; but at the stage of Rule 2(2) of Order XIV, the defence set up by the defendant and his documents also can be looked into. 6. As I stated above, the thrust of argument learned Senior Advocate for petitioners has advanced is that the suit is barred under the relevant provisions of the FEMA and the Regulations made thereunder and hence, the averment in the plaint does not constitute a cause of action. In asking the Court to decide an issue (relating to rejection of plaint) which is essentially a ‘demurrer’ petitioners must be taken to admit for the sake of argument that allegations of the respondent in his plaint are true, modo et forma - in manner and form. (See Kanhaya Lal Vs. National Bank of India, LD. ((1913) 40 Cal. 598). The power to reject a plaint under Rule 11 of Order VII of the Code must be exercised only if the Court comes to the C.R.P.No.857 of 2006 -: 10 :- conclusion that even if all the allegations are proved, respondent could not be entitled to any relief whatsoever. In Jagannath Prasad and Ors. Vs. Smt. Chandrawati and Anr. (AIR 1970 Allahabad 309), relied on in State of Madhya Pradesh Vs. Ganga Charan (1974 MPLJ 533) it was held that a distinction must be drawn between a case where the plaint itself does not disclose a cause of action and another, in which, after considering the entire materials on record the Court comes to the conclusion that there is no cause of action. In the latter case, the plaint cannot be rejected. 7. The expression “cause of action” has been the subject matter for consideration in various decisions. In short, the expression means the bundle of material facts necessary for the plaintiff to prove in order to entitle him succeed in the suit. It is a bundle of facts which gives the plaintiff a right of action. (See Kunjan Nair Sivaraman Nair Vs. Narayanan Nair (2004(1) KLT 1082) and Ram Prakash Gupta Vs. Rajiv Kumar Gupta and Ors. ((2007)10 SCC 59). The expression 'cause of action' refers only to the grounds set forth in the plaint as the cause of action or, in other words, to the media upon which plaintiffs asks the Court to arrive at a conclusion in his favour (See Sopan Sukhdeo Sable and Ors. Vs. Assistant Charity C.R.P.No.857 of 2006 -: 11 :- Commissioner and Ors. ((2004)3 SCC 137). At the stage of verification under Rule 11(a) of Order VII, the question whether respondent in the present case has a 'cause of action' to seek all or any of the reliefs he has prayed for in the plaint must be ascertained with reference to the averments in the plaint as a whole and the documents produced along with it which must be treated as part of the pleadings in the plaint. 8. The Supreme Court in T.Arivandandam Vs. T.V Satyapal and Anr. ((1977)4 SCC 467) and in particular, paragraph 5, Liverpool & London S.P & I Association Ltd Vs. M.V Sea Success I and Anr. ((2004)9 SCC 512) (paragraph 139) and N.V.Srinivasa Murthy and Ors. VS. Mariyamma and Ors. ((2005)5 SCC 548) (paragraph 17) has stated that the Activist Judge must give consideration for the averments in the plaint, lift the veil created by artistic pleading and find whether the suit is frivolous and could cross the barrier under Rule 11 of Order VII of the Code. In T.Arivandandam Vs. T.V Satyapal and Anr. (supra), V.R. Krishna Iyer, J observed that the Court should remember that if on a meaningful, not formal reading of the plaint it is manifestly vexatious and meritless in the sense of not disclosing a clear right to sue, the Court should exercise its power under Rule 11 of Order VII of the Code taking care to see C.R.P.No.857 of 2006 -: 12 :- that the ground mentioned therein is fulfilled and if clever drafting has created the illusion of a cause of action, the Court must nip it in the bud at the first hearing by examining the parties searchingly under Order X of the Code. An activist Judge is the answer to irresponsible law suits, it is held. The trial Court should insist imperatively on examining the party at the first hearing so that bogus litigations can be shut down at the earliest stage. The same principle is adopted in Liverpool & London S.P & I Association Ltd Vs. M.V Sea Success I and Anr. and N.V.Srinivasa Murthy and Ors. VS. Mariyamma and Ors. (supra). In Ram Prakash Gupta Vs. Rajiv Kumar Gupta and Ors. also, reliance is placed in T.Arivandandam Vs. T.V Satyapal and Anr. (supra) and it is held that for the purpose of clause (d) (of Rule 11 of Order VII of the Code) it is the duty of the person who files an application (to reject the plaint) to satisfy the Court that the plaint does not disclose any cause of action. In order to answer the said question it is incumbent on the part of the Court to verify the entire plaint. 9. In the present case, contention is that the suit is barred under provisions of the FEMA and the Regulations framed under it and hence the plaint does not disclose any cause of action. Clause (d) of Rule 11 of Order VII of the Code makes a C.R.P.No.857 of 2006 -: 13 :- marked difference with a similar expression found in Rule 2(2)(b) of Order XIV of the Code in that, while clause (d) of Rule 11 of Order VII says, “where the suit appears from the statement in the plaint to be barred by any law” Rule 2(2)(b) of Order XIV of the Code says, “a bar to the suit created by any law for the time being in force”. The difference is that so far as clause (d) of Rule 11 of Order VII is concerned, it must “appear” from the averments in the plaint that the suit is barred by any law while, when it comes to Rule 2 (2) (b) or Order XIV it must be shown that the suit is barred by any law for the time being in force. 10. I referred to the presence of the expression “appears” in Rule 11(d) of Order VII of the Code. It is held by the Supreme Court (See Pyare Lal Bhargava Vs. State of Rajasthan (AIR 1963 SC 1094) though referring to Sec.24 of the Evidence Act that the appropriate meaning of the word “appears” is “seems”. Thus, from the plaint averments and documents produced along with and from that alone, the Court must have the satisfaction that the suit appears or seems to be barred by any law for the time being in force. My endeavour is to find whether from the averments in the plaint and the documents produced along with C.R.P.No.857 of 2006 -: 14 :- the plaint, it can be said that the suit “appears” to be barred by any law. If the finding is in the affirmative, necessarily I must hold that the averments in the plaint does not reveal any cause of action. 11. Before going into the crucial question, I think, a reference to the averment in the plaint is required. In paragraph 1, respondent says that he is a person of Indian origin settled and living in the United States of America. In paragraph 4, it is stated that on account of the familial relationship respondent and petitioners 1 and 2 had, they were on very close and cordial terms. Paragraph 5 states that during the year 2004, first petitioner brought a proposal to the respondent to purchase a land (by the respondent) and that first petitioner persuaded and requested the respondent to purchase the said land since according to him it was profitable for respondent to invest money by making the said purchase. It is further stated in the same paragraph that by letter dated August 20, 2004 (produced with the plaint) first petitioner informed respondent about the said proposal (to purchase land from Van Ingen). First petitioner insisted and persuaded respondent to purchase the said property. In paragraph 7 of the plaint, it is averred that respondent agreed to that proposal (made by the first petitioner) and gave green C.R.P.No.857 of 2006 -: 15 :- signal to petitioners 1 and 2 to go ahead and facilitate the transaction on behalf of respondent. Paragraph 8 of the plaint averrs that before August 20, 2004 respondent had sent `.11,00,000/- to the first petitioner, of that `.5,00,000/- was given to him by way of gift and the balance sum of `.6,00,000/- was with the first petitioner (on behalf of respondent). In paragraph 9, it is stated that first petitioner informed respondent over telephone that he has entered into an agreement for purchase of the property as per proposal with the vendor (Van Ingen), acting in trust for the respondent in a fiduciary capacity. Respondent got letter dated October 14, 2004 (produced with the plaint) from the first petitioner confirming payment of `.10,00,000/- (to the vendor) as advance. First petitioner informed respondent that if necessary, he will get the required sanction from the RBI. He told respondent that it was for the respondent to decide what should be the role of first petitioner in the matter. In paragraph 10, it is stated that petitioners 1 and 2 acted in a fiduciary capacity in trust for the respondent to facilitate the transaction. The agreement (for purchase of the land) was executed on August 27, 2004 by petitioners 1 and 2 in a fiduciary relationship with the respondent. In paragraph 12 of the plaint, it is stated that later, respondent was told over phone that to facilitate the C.R.P.No.857 of 2006 -: 16 :- transaction it is necessary to form a private limited company, that the first petitioner will fully protect the interest of respondent and that petitioners 1 and 2 will do all what is necessary to complete the transaction through the company (third petitioner). In paragraph 14, it is stated that while so, in May 2005, first petitioner informed respondent that he has done everything to purchase the suit property – 33.50acres - and that the vendor has agreed to execute and register the document of sale. Paragraph 16 says that respondent took steps to transfer $.3,20,000/- from his NRI account with the State Bank of Travancore to the account of the first petitioner and issued a cheque (to the first petitioner). Paragraph 17