FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 1 of 30 * IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on : 08.04.2009 % Date of decision : 27.04.2009 + FAO (OS) No.200/2006 M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS. …APPELLANTS Through: Mr.Shailen Bhatia, Mr.Rohit Aggarwal, Ms.Vandana Nathan & Ms.Ekta Nayar Saini, Advocates. Versus M/S CONVENIENCE ENTERPRISES PVT. LTD ...RESPONDENT Through: Mr.A.S.Chandhiok Mr.Aman Lekhi, Sr.Advs. with Mr.Nitin Sharma, Mr.Mayank Chawla & Mr.Gagan Chhabra, Advocates. + FAO (OS) Nos.201-203/2006 M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS. …APPELLANTS Through: Mr.Shailen Bhatia, Mr. Rohit Aggarwal, Ms.Vandana Nathan & Ms.Ekta Nayar Saini, Advocates. Versus M/S CONVENIENCE ENTERPRISES PVT. LTD ...RESPONDENT Through: Mr. A.S.Chandhiok Mr.Aman Lekhi, Sr.Advs. with Mr.Nitin Sharma, Mr.Mayank Chawla & Mr.Gagan Chhabra, Advocates. + FAO (OS) No.207-209/2006 FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 2 of 30 M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS. …APPELLANTS Through: Mr.Shailen Bhatia, Mr. Rohit Aggarwal, Ms.Vandana Nathan & Ms.Ekta Nayar Saini, Advocates. Versus M/S CONVENIENCE ENTERPRISES PVT. LTD ...RESPONDENT Through: Mr. A.S.Chandhiok Mr.Aman Lekhi, Sr.Advs. with Mr.Nitin Sharma, Mr.Mayank Chawla & Mr.Gagan Chhabra, Advocates. + FAO (OS) No.219/2006 M/S CONVENIENCE ENTERPRISES PVT. LTD …APPELLANT Through: Mr. A.S.Chandhiok Mr.Aman Lekhi, Sr.Advs. with Mr.Nitin Sharma, Mr.Mayank Chawla & Mr.Gagan Chhabra, Advocates. Versus M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS. ...RESPONDENTS Through: Mr.Shailen Bhatia, Mr. Rohit Aggarwal, Ms.Vandana Nathan & Ms.Ekta Nayar Saini, Advocates. + FAO (OS) No.240/2006 M/S CONVENIENCE ENTERPRISES PVT. LTD …APPELLANT Through: Mr. A.S.Chandhiok Mr.Aman Lekhi, Sr.Advs. with Mr.Nitin Sharma, Mr.Mayank Chawla & Mr.Gagan Chhabra, Advocates. FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 3 of 30 Versus M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS. ...RESPONDENTS Through: Mr.Shailen Bhatia, Mr. Rohit Aggarwal, Ms.Vandana Nathan & Ms.Ekta Nayar Saini, Advocates. + FAO (OS) No.226/2006 M/S CONVENIENCE ENTERPRISES PVT. LTD …APPELLANT Through: Mr. A.S.Chandhiok Mr.Aman Lekhi, Sr.Advs. with Mr.Nitin Sharma, Mr.Mayank Chawla & Mr.Gagan Chhabra, Advocates. Versus M/S KOHLI HOUSING AND DEVELOPMENT PVT. LTD AND ORS. ...RESPONDENTS Through: Mr.Shailen Bhatia, Mr. Rohit Aggarwal, Ms.Vandana Nathan & Ms.Ekta Nayar Saini, Advocates. CORAM: HON'BLE MR. JUSTICE SANJAY KISHAN KAUL HON‟BLE MR. JUSTICE SUDERSHAN KUMAR MISRA 1. Whether the Reporters of local papers may be allowed to see the judgment? Yes 2. To be referred to Reporter or not? Yes 3. Whether the judgment should be Yes reported in the Digest? SANJAY KISHAN KAUL, J. 1. In this judgment, M/s.Kohli Housing & Development Pvt. Ltd and Ors have been referred to as the appellants while M/s FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 4 of 30 Convenience Enterprises Pvt. Ltd has been referred to as the respondent. 2. The respondent filed three separate suits being CS(OS) Nos.9-11/06 against the appellants alleging that in the year 2005 monies were paid by them towards sale consideration in respect of three plots in Malibu Towne, Gurgaon, Haryana to the appellants who were seeking to back out of the transaction. On the other hand, the case of the appellants is that the time period for making the balance payment had expired and the earnest money stood forfeited. 3. The parties with the assistance of counsel arrived at a Memorandum of Settlement („MOS‟ for short) to compromise all the three suits and executed the same on 23.01.2006. The said MOS records in para 4 that an out of court settlement had been arrived at between the parties in pursuance whereto the appellants had paid to the respondent both cash and pay orders/bank drafts. It may be noticed that while the original earnest money paid was less, almost double that amount was agreed to be paid as under: Plot No. By Draft Draft No. and Date Drawn On By Cash Total 15 Pine Drive 6,82,000/- 990255 21.1.2006 Citibank N.A., Jeevan Bharati, Connaught Circus, New Delhi 18,000/- 7,00,000/- 18 Pine Drive 6,82,000/- 990256 21.1.2006 Citibank N.A., Jeevan Bharati, Connaught Circus, New Delhi 18,000/- 7,00,000/- 10 Club Road 8,82,000/- 990257 21.1.2006 Citibank N.A., Jeevan Bharati, Connaught Circus, New Delhi 18,000/- 9,00,000/- FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 5 of 30 4. Since it is this agreement which forms the substratum of the present dispute, it is necessary to reproduce the relevant clauses of the same, which are as under: “5. The First Party and Dr.R.K.Anand confirm that they have received the aforesaid amounts as indicated in para 4 above and inconsideration of the aforesaid payments all rights, title and interest of the First Party and Dr.R.K.Anand in the abovementioned plots, pursuant to all the aforesaid Agreements dated 08.04.2005, 25.04.2005 and 12.05.2005 executed between the parties stand fully satisfied and extinguished and the First Party and Dr.R.K.Anand are left with no other or further claims, rights, title or interest in the said plots. In consideration of the said payments the First Party and Dr.R.K.Anand have also agreed to unconditionally withdraw CS(OS) Nos. 9/2006, 10/2006 and 11/2006, pending before this Hon‟ble High Court. Similarly, the Second Party, Third Party and Fourth Party also have no grievances and/or claim of any nature, whatsoever, against the First Party and Dr. R.K.Anand. 6. The parties further agree that with the execution of this Memorandum of Settlement all the parties have been released and/or relieved of their respective obligations under the said Agreements and all the said Agreements stand revoked, cancelled and terminated absolutely and forever. 7. The First Party and Dr.R.K.Anand in consideration of the aforesaid payment specified in para 4 above also hereby agrees and undertakes not to file any other legal proceedings in any other Court/Forum in respect of the said plots against the Second and Third Party or Fourth Party or any other person and confirm that they have not entered into any transaction in respect of Plot No.15, Pine Drive and Plot No.18, Pine Drive, Malibu Town, Gurgaon with any other party or created any other party rights in respect thereof. However, in respect of Plot No.10, Club Road, Malibu Town, Gurgaon, an agreement on 4th day of May, 2005 was entered into by the First Party with one Mr.Kanwar Ajay Mahipal, S/o Sh.N.S.Mahipal, R/o 74, Hemkunt Colony, G.K.-I, New Delhi – 110048, which agreement stood terminated/cancelled and is legally not FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 6 of 30 binding and enforceable according to the First Party. 8. That this Memorandum of Settlement has been executed in full and final settlement of all claims of all parties including Dr. R.K.Anand and no party hereto has any claim of any nature whatsoever left against each other. All the parties to this Memorandum of Settlement hereby agree and undertake that they have no cause of action for filing any legal proceedings of any nature, whatsoever, against each other in relation to the aforesaid plots and the aforesaid agreements. The parties to this Memorandum of Settlement further declare that except the above three civil suits, no other civil and/or criminal proceedings have been either filed or are pending by or against each other. 9. The First Party and Dr.R.K.Anand have returned the three original Agreements to Sell dated 08.04.2005, 25.04.2005 and 12.05.2005 to the Second Party the receipt of which the Second party hereby confirms and acknowledges. 10. Simultaneously with the execution of this Memorandum of Settlement the First Party and Dr.R.K.Anand have also authorized and empowered Dr.R.K.Anand and/or Mrs. Nalini Sarin, wife of Mr. Varun Sarin, jointly and/or severally to take allsteps necessary to withdraw CS(OS) Nos. 9/2006,10/2006 and 11/2006 filed by the First Party and Dr.R.K.Anand in the Hon‟ble High Court of Delhi. 11. The parties further agree that both the parties shall move a joint application for withdrawal in terms of this Memorandum of Settlement in CS(OS) Nos.9/2006, 10/2006 and 11/2006 before the Delhi High Court. This Memorandum of Settlement has been signed and executed by the Parties hereto in five parts, one each to be annexed with the joint application to be filed in each of the aforesaid three suits and one copy each will be retained by the First Party and one copy collectively by the Second, Third and Fourth Party.” (emphasis supplied) 5. A joint application was also prepared by the parties under Order 23 Rule 3 r/w Section 151 of the Code of Civil Procedure, 1908 („the said Code‟ for short). A copy of the FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 7 of 30 MOS dated 23.01.2006 was annexed as Annexure „A‟ to the application. It was averred in the application that with the execution of MOS, the claims of the parties did not survive and the suits be dismissed in view of the MOS. The application was signed on 24.01.2006. 6. The date fixed before the Court was 25.01.2006, but no proceedings were held on that date on account of the Presiding Officer not taking court. The pay orders/bank drafts which were prepared and handed over to the respondent were in the name of „M/s. Convenience Enterprises Limited‟. It is the case of the appellants that they realized that while the name of the respondent was M/s. Convenience Enterprises Private Limited, the word „Private‟ was missing from the pay orders/bank drafts. Thus, even prior to the date fixed of 25.01.2006, the appellants got prepared fresh pay orders/bank drafts on 24.01.2006 and even filed an application on 28.01.2006 seeking directions that the respondents be directed to accept the fresh pay orders and return the original ones. 7. The respondent, however, took the stand before the Court that they had presented the pay orders/bank drafts which could not be credited to their account on account of the fact that the word „Private‟ was missing. In fact, the pay orders/bank drafts were even re-presented to Citi Bank N.A., which had issued the pay orders/bank drafts, to facilitate the encashment, but even there the same problem arose. The respondent thus pleaded that the consideration had failed and the settlement was over. In fact, the respondent backed FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 8 of 30 out of the settlement on account of the pay orders/bank drafts not being honoured on account of name of the respondent not having the word „Private‟ in the pay orders/bank drafts. This was succeeded by the respondent filing an application that the settlement could not be accepted as it was obtained under fraud, coercion and undue influence. 8. The aforesaid applications were decided by the impugned order dated 10.03.2006 by the learned Single Judge of this Court. The learned Single Judge concluded that the respondent had been unable to establish a case of undue influence, coercion or fraud. However, simultaneously, the learned Single Judge has come to the conclusion that though the parties had freely entered into the MOS, the erroneous description of the respondent in the pay orders/bank drafts and the consequent inability of the respondent to encash them is of crucial importance. The consideration as per the MOS had not passed on to the respondent even though it had done whatever was required of him including handing over all the original documents to the appellants at the time of the settlement. The learned Single Judge concluded that there was time and occasion for the appellants to make the payments but they had let it slip by and the respondent had not condoned the lapse and thus the respondent could not be compelled to accept the settlement. The result was that the suits were liable to be proceeded with as the MOS was held to be voidable. The learned Single Judge in the end observed that he was satisfied that there has been a failure of FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 9 of 30 consideration and, therefore, the agreement between the parties is voidable. Both the parties were aggrieved by the said order and have filed separate appeals. The appellants are aggrieved by the non acceptance of the pay orders/bank drafts by the respondent as per the MOS while the respondent has filed the appeals on account of the finding that there was no fraud, coercion or undue influence. 9. The findings of the learned Single Judge that the MOS was entered into freely could not really be assailed. The allegation of fraud, coercion and undue influence was made by the respondent for the first time only in a lawyer‟s notice dated 27.01.2006. Prior to that, the cash amount had been accepted as also the pay orders/bank drafts. The pay orders/bank drafts were presented for payment and re- presented for payment. Compromise application had also been signed. Other than the bald allegation of fraud, coercion and undue influence, nothing has been substantiated. The respondent had made corrections in the MOS including incorporating of facts known only to the respondent like the further transaction between the respondent in respect of one of the plots with a third party. The electronic correspondence between the parties also showed the free application of mind by both the sides before signing the MOS. This also appears to be the reason that the respondent has made no effort to even canvass the said proposition. It is trite to say that an allegation of fraud must be clear, definite and specific and general allegations unaccompanied by particulars are insufficient to amount to FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 10 of 30 an averment of which judicial notice can be taken. We draw strength from the observations made by the Supreme Court in A.C.Ananthswamy v. Boraiah; (2004) 8 SCC 588 where in para 5, it was observed as under: “To prove fraud, it must be proved that representation made was false to the knowledge of the party making such representation or that the party could have no reasonable belief that it was true. The level of proof required in such cases is extremely higher. An ambiguous statement cannot per se make the representor guilty of fraud. To prove a case of fraud, it must be proved that the representation made was false to the knowledge of the party making such representation. (See Pollock & Mulla: Indian Contract and Specific Relief Acts (2001), 12th Edn., p.489)” There is, thus, no infirmity with the finding of the learned Single Judge on this account. 10. The real bone of contention between the parties arose as a consequence of pay orders/bank drafts not being honoured by the bank on account of the word „Private‟ missing from them. A question thus arises whether there was a failure of consideration making the MOS voidable at the option of the respondent as concluded by the learned Single Judge or whether the agreement continued to be binding between the parties in view of the facts and circumstances of the case. 11. Learned counsel for the appellants emphasized that the learned Single Judge had lost sight of the fact that part of the consideration was already paid and accepted by the respondent in cash. The respondent had accepted the pay orders/bank drafts after verifying the same. Thus, the FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 11 of 30 respondent was satisfied with the receipt of the cash and pay orders/bank drafts and the full consideration in that manner had passed. This was also so recorded in the MOS dated 23.01.2006. Learned counsel invited the attention of this Court to para 6 of the MOS where it was clearly stated that the parties had agreed that with the execution of MOS all the parties had been released and/or relieved of their respective obligations under the said agreement and all the agreements stood revoked/cancelled and terminated absolutely and forever. It was thus contended that the respondent never objected that its name was not correctly reflected in the pay orders/bank drafts. The factum of presentation of the pay orders/bank drafts by the respondent itself showed that the respondent thought that the pay orders/bank drafts would be honoured and the absence of the word „Private‟ would not make any difference as there were no two separate legal entities – one being a public company and one being a private company. In the alternative it was submitted that at best it could be treated as a case of mis-description of the name of the respondent by a bona fide mistake and the appellants being conscious of the possibility of a problem had got a second set of pay orders/bank drafts prepared with the word „Private‟ included in them on 24.01.2006 itself i.e. the very next day and before the first date fixed in the Court. The account of the appellants, in fact, had been debited twice by getting two separate sets of pay orders/bank drafts and continued to be so debited since both the sets of pay orders/bank drafts are lying in the Court. FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 12 of 30 12. Learned counsel for the appellants also sought to challenge the findings of the learned Single Judge about the time being the essence of the contract since the matter related to immoveable properties and the cancellation of agreement in respect thereof. It was, thus, contended that it was not open to the respondent to wriggle out of the compromise arrived at or oppose the joint application filed by the parties. In support of its contention, learned counsel referred to the judgment of the Apex Court in Swarnam Ramachandran (Smt.) and Anr. v. Aravacode Chakungal Jayapalan; (2004) 8 SCC 689 and of the learned Single Judge in Kuldip Gandotra v. Shailendra Nath Endlay & Anr.; AIR 2007 Delhi 1. 13. Learned counsel for the appellants in order to support the plea that the respondent cannot wriggle out of the compromise application filed under Order 23 Rule 3 of the said Code relied upon judgments in Parmod Kumar Rastogi v. Gian Chand Jain; 1996 AIHC 3756 and Mathulla Verghese and Anr.v.Mrs.Vijaya and Ors; 2001 AIHC 966. However, these judgments are really in respect of the mode and manner of a compromise application being filed, which is not really germane to the present issue. Learned counsel also referred to the judgment in XS Financial Services Ltd. and Anr. v. N.Devendran and Ors; AIR 2003 Madras 369 where the Division Bench had observed that once a memorandum of compromise is signed and produced before the Court, the Court shall presume that the memorandum of compromise has been entered into with full understanding of its terms. It FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 13 of 30 may once again be observed that there is really no dispute about the compromise being arrived at in the present case. 14. A reference was also made to the judgment in Amteshwar Anand v. Virender Mohan Singh & Ors; (2006) 1 SCC 148 where a compromise decree was sought to be subsequently re-opened on account of the alleged non- payment. It was held that mere non-payment was certainly not supportive of ground for setting aside the decree on the basis of allegation of fraud but that the applicants could execute a decree for money due under the compromise decree. 15. Learned counsel for the appellants next sought to refer to provisions of Section 93 of the Negotiable Instruments Act, 1893 („the said Act‟ for short) to contend that there was no notice issued by the respondent of dishonor and the appellants had taken immediate steps to rectify the consequences of the mistake. The relevant provisions are as under: “92. Dishonors by non-payment.- A promissory note, bill of exchange or cheque is said to be dishonored by non- payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same. 93. By and to whom notice should be given.- When a promissory note, bill of exchange or cheque is dishonored by non-payment, the holder thereof, or some party thereto who remains liable thereon, must given notice that the instrument has been so dishonored to all other parties whom the holder seeks to make severally liable thereon, and to some one of several partied whom he seeks to make jointly FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 14 of 30 liable thereon. Nothing in this section renders it necessary to give notice to the maker of the dishonored promissory note, or acceptor of the dishonored bill of exchange or cheque. 16. Learned counsel also relied upon the judgment in Raghunath Rithkaran v. The Imperial Bank of India Ltd; 1925 Volume XXVII 1229. In the facts of the case, the bank had presented four hundis for payment to the plaintiffs. Hundis were all alike in outward appearance and written out in the same hand and bearing the same nishani. Three of the hundis were drawn against the plaintiffs while the fourth one was not drawn against the plaintiff, but against a different person altogether. The bank failed to bring the mistake with reference to one of the hundis to the notice of the plaintiffs when they accepted the hundis. The plaintiffs paid off the amount of the four hundis in couple of hours in entire ignorance of the fact that one of the hundis was not drawn on them at all. The mistake committed was not even noticed when the plaintiffs entered the hundis in their Nondh book. 17. A difference of opinion between the two judges gave rise to a reference. One of the judges was of the opinion that the plaintiffs were not entitled to recover both on account of negligence in not examining the terms of the hundis when they accepted them and of their delay in not calling upon the bank as soon as the mistake came to their notice afterwards. The second opinion was that the bank was also equally guilty of negligence in not noticing the drawee‟s name and in making a wrong presentment and the FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 15 of 30 bank failed to prove that they were prejudiced by reason of delay on plaintiffs part. 18. On reference, the third Judge opined that the plaintiffs accepted the position as drawees of the hundis on account of mutual relationship with the bank which cast on them a duty to inform the bank within a reasonable time that they had accepted that position under a mistake of fact. It was observed that in case of negotiable instruments, mistakes of this kind should be noticed within a reasonable period of time which they failed to do. 19. The aforesaid judgment has been relied upon by the learned counsel for the appellants to support the plea that it is, in fact, the appellants who took remedial steps to correct the mistake without any loss to the respondent while the respondent had not even notified them of the mistake of accepting the pay orders/bank drafts drawn in the manner as was so done. 20. A reference has also been made to the commentary of Tannan‟s on Banking Law and Practice in India, 20th Edition, 2001 where on pages 317-318. it has been observed as under: “Apparent mistakes do not vitiate the validity of Cheques – The validity of cheques is not vitiated by mistakes which can be easily discovered and which are apparent. An instrument is not rendered invalid by an apparent mistake, e.g., an omission in the written words, as long as the intention is quite clear – see Halsbury‟s Laws of England, 2nd Edition, Vol.II, p.713. Thus, a bill where the word “pound” is used instead of “pounds” does not thereby become invalid.” FAO(OS) 200/06, 201-203/06, 207-209/06, 219/06, 226/06 and 240/06 Page 16 of 30 21. Learned counsel also referred to the Halsbury‟s Laws of India; Volume 4: “{30.030} Payee maybe mentioned by name or description Where the payee is named incorrectly, or where his name is misspelt, the instrument is not invalidated, the payee being permitted indorse the instrument as he was described, adding at his option his proper signature. It is sufficient that the payee should be