RFA 321 of 2005 Page 1 of 23 * IN THE HIGH COURT OF DELHI AT NEW DELHI % RFA 321 OF 2005 + Date of Decision: 14th February, 2011 # K.P. SOLVEX LTD. ...Appellant ! Through: Mr. Alok Mahajan and Ms. Anjani, Mahajan, Advocates. Versus $ HYDERABAD INDUSTRIES LTD. & ORS. ...Respondents ^ Through: Mr. A.S. Chadha and Ms. Harpreet Kaur, Advocates for R-1. CORAM: * HON'BLE MR. JUSTICE P.K.BHASIN 1. Whether Reporters of local papers may be allowed to see the judgment?(No) 2. To be referred to the Reporter or not?(No) 3. Whether the judgment should be reported in the digest?(No) JUDGMENT P.K.BHASIN, J This is an appeal against the judgment and decree dated 15.3.2005 passed by the learned Additional District Judge whereby the suit no. (hereinafter to be referred as the „subsequent suit‟) filed by the appellant- plaintiff(hereinafter to be referred to as „the plaintiff‟) for setting aside of an ex parte decree dated 13th October,1993 passed by this Court against it in suit no.89 of 1987(hereinafter to be referred as „the former suit‟) filed by the respondent no.1 herein(hereinafter to be referred to as „the plaintiff of the former suit‟) for recovery of Rs. 3,75,000/- with interest against the plaintiff and respondents no. 2 and 3 herein, who were impleaded in the RFA 321 of 2005 Page 2 of 23 former suit as defendants no. 1 and 2 respectively and in the subsequent suit as defendants no. 2 and 3. 2. The facts, as per the case of the the plaintiff, which led to the filing of the suit out of which the present appeal arose, may briefly be stated before proceeding further. The plaintiff of the former suit, which was earlier known as Hyderabad Asbestos Cement Products Limited and was into the business of making asbestos cement sheets, had appointed M/s Gupta Tractors & Traders(defendant no.3 in the subsequent suit),a proprietorship concern of defendant no. 2 in the subsequent suit, Ashok Kumar Gupta, as its agent/stockist at Jhansi for sale of asbestos cement sheets made by it. (Reference to these two defendants shall hereinafter be collectively made as „the stockist‟). The plaintiff had placed an order on the stockist on 25th April, 1984 for supply of asbestos cement sheets manufactured and sold by the plaintiff of the former suit. As desired by the stockist the plaintiff had made an advance payment of Rs.30,000 to the stockist by way of a bank draft favouring the plaintiff of the former suit and thereafter the stockist placed the order on the plaintiff of the former suit which in turn had supplied the material to the plaintiff. The plaintiff made the payment of that material to the stockist as per the instructions of the plaintiff of the former suit. 3. As per the further case of the plaintiff, the plaintiff of the former suit filed the former suit against the plaintiff and the stockist in the High Court of Delhi for recovery of Rs. 3,75,000/- together with pendente lite RFA 321 of 2005 Page 3 of 23 and future interest thereon @ 21.5% p.a. alleging that no payment was made to it by the stockist against the supply of asbestos sheets made to the plaintiff M/s K.P. Solvex Ltd. and that though the plaintiff was claiming that it had made the payment to the stockist but the stockist had not acknowledged having received the payment from the plaintiff and since the material had been supplied to the plaintiff it was also liable, jointly and severally, with the stockist to make the payment of the price of the material. It was also claimed by the plaintiff of the former suit that there was a running account of the stockist being maintained by it and during the course of business dealings between the two some cheques issued by the stockist had been dishonoured and the suit amount included the amount of those cheques also besides the amount due from the stockist on account of the particular supply of the material to the plaintiff here. The plaintiff herein had put in appearance in the former suit and had filed its written statement claiming that it had already made the payment to the stockist. After fining the written statement its counsel in that suit disappeared from that case and since the stockist was already not contesting that case the High Court passed a decree on 13th October,1993 for a sum of Rs.3,75,000/- with interest thereon @ 21.5 % p.a. against the stockist as well as the plaintiff herein holding them liable for the payment of the decretal amount jointly as well as severally. 4. On coming to know about the ex parte decree having been passed against it in the former suit the plaintiff filed an application under Order RFA 321 of 2005 Page 4 of 23 IX Rule 13 read with Section 151 C.P.C. for setting aside the ex parte judgment and decree . In that application the plaintiff had claimed that its counsel had kept it in dark about the progress of the suit and had stopped appearing in the proceedings and, therefore the ex parte decree should be re-called. It was also claimed by the plaintiff herein that the plaintiff of that suit had obtained the decree by suppressing the fact that its stockist had been paid the full price of the material by it on the specific instructions of the plaintiff of that suit and, therefore, the plaintiff of that suit had obtained the decree by fraud. That application was, however, rejected on 23rd September,1996 by the learned Single Judge on the ground that the applicant(plaintiff herein) had failed to show that it was prevented by any sufficient cause from appearing in the suit proceedings. Regarding the facts pleaded in the application touching the merits of the claim of the plaintiff of that case, the learned Single Judge had observed as under:- “Therefore, in view of the above legal position, the applicant cannot challenge the judgment and decree on merits under Order 9 Rule 13 CPC. For that the applicant ought to have taken recourse to the remedies which may be available to it under law.” 5. The dismissal of that application under Order IX Rule 13 CPC was not challenged in appeal and instead in view of the above-quoted observation of the learned Single Judge the plaintiff filed a separate suit for declaration that the decree in the former suit had been obtained by the plaintiff of that suit by fraud and so was a nullity. That suit, in which the stockist firm and its proprietor were also impleaded, was also filed in the RFA 321 of 2005 Page 5 of 23 Delhi High Court but subsequently the same was transferred to the District Courts because of the increase in pecuniary jurisdiction of District Courts. 6. The plaintiff‟s main plea in the subsequent suit was that the allegations made against it in the former suit were false to the knowledge of the plaintiff of that suit inasmuch as it had made the full payment towards the material to the stockist and that position was not only known to the plaintiff of the former suit but was specifically admitted also by it in its notice of demand dated 16th May,1986, Ex.PW-2/12, in which only sales tax was claimed from the plaintiff and though a reference was made in the plaint about that demand notice in the former suit but that notice had been suppressed from the Court by the plaintiff of that suit and that concealment of vital document amounted to fraud upon the Court. Another ground taken in the plaint was that even though the plaintiff‟s counsel had disappeared from the case after filing the written statement the Court was still required to consider the written statement filed by the plaintiff in the former suit as also the documents filed by the plaintiff in that suit some of which were letters exchanged between the plaintiff and the plaintiff of the former suit wherein the plaintiff had claimed that it had made the payment of the material in question to the stockist and the plaintiff of the former suit had not refuted in any of its letters that fact and further that a bare reading of the plaint in the former suit would show that that case was based on the outstanding dues from the stockist as reflected in its running account which was being maintained by the plaintiff of the RFA 321 of 2005 Page 6 of 23 former suit and not for the price of the material purchased by the plaintiff here. That aspect had not been taken note of by the learned Single Judge who had decreed that suit. It was also pleaded in the plaint in the subsequent suit by the plaintiff that it was under no obligation to pay the price of the material to the plaintiff of the former suit and so it could not be made liable for the payment of price of the material under a joint and several decree in the former suit. Another ground of challenge taken was that, in fact, the plaintiff of the former suit had fraudulently invoked the territorial jurisdiction of the Delhi High Court when, in fact, no cause of action whatsoever had arisen within the jurisdiction of this Court and for that reason also the ex-parte decree in the former suit was liable to be set aside having been passed by a Court having no jurisdiction. It was also pleaded that for more than two years after the transaction in question the plaintiff of the former suit had not demanded the price of the material from the plaintiff and it had been claiming only the supply of „C Form‟ under the Sales Tax Rules and even in the final demand notice dated 16th May, 1986 only sales tax forms were demanded from the plaintiff. In paras no. 28(XII & XIII)) of the plaint it had also been pleaded that: “XII. THAT Hon‟ble Mr. Justice M. Shamim, who passed the ex-parte decree, did not take cognizance of the facts submitted in the written statement filed in suit no. 89 of 1987, on behalf of defendant no. 3(the defendant herein), and the documents produced on record by the defendant no. 3 in the said suit………… The learned Judge misdirected himself in passing a joint and several decree in the sum of Rs. 3,75,000/- against the plaintiff herein, when the allegations pleaded in the plaint were only for non-supply of CST Form-C or for differential of CST amounting to Rs. 14,867/-. When the written statement and the relevant documents were placed on record by and on behalf of the plaintiff herein, it was the duty of the Court to look into these RFA 321 of 2005 Page 7 of 23 documents before passing an ex-parte decree and the learned Judge, therefore, misdirected himself in passing an ex-parte joint and several decree in the sum of Rs. 3,75,000/- when the only claim pleaded in the plaint against the Plaintiff herein was for non-supply of CST Form C. XIII. THAT without prejudice to the aforesaid, it is submitted that even on the Pleadings in the Plaint, the extent to which Defendant No. 3(the Plaintiff herein) could be held liable in a joint and several decree would be for the non-supply of CST Forms C, and in failure thereof to payment differential in sales tax between 4% and 10%, which comes to Rs. 14,867/-. The joint and several ex-parte decree in the sum of Rs. 3,75,000/- passed against the Defendants in the suit ought to have been apportioned against the Defendants in the ratio of Rs. 3,60,133/- against the Defendants 1 & 2 and Rs. 14,867/- against Defendant No. 3. Any liability under the decree beyond Rs. 14,867/- against the Defendant No. 3 is manifestly against law.” 7. The plaintiff of the former suit only contested the subsequent suit on the grounds that after the dismissal of plaintiff‟s application under Order IX Rule 13 read with Section 151 C.P.C. for setting aside of the ex parte decree that decree had become final since no appeal was filed challenging the order dismissing that application or even against the judgment and decree and so the present suit was barred by the principle of res judicata since the plea of payment which the plaintiff had raised in the subsequent suit was raised by it in the former suit also. Similarly the plea of fraud was also raised in the application under Order IX Rule 13 CPC and the order of rejection of that application also created a bar for the same plea being entertained in the subsequent suit. On merits, the plaintiff of the former suit admitted that the plaintiff had placed an order upon the stockist for purchase of asbestos cement sheets but it was claimed that price of that material was to be paid by the plaintiff directly to the plaintiff of the former suit and in any event payment was not made to it either by the stockist or by the plaintiff here even if it had been made to RFA 321 of 2005 Page 8 of 23 the stockist and so it(plaintiff of the former suit) was justified in filing a suit for recovery of its dues against its stockist as well as the present plaintiff as an unpaid seller of goods and the trial Court had rightly decreed the former suit against all the defendants in that suit holding them liable jointly as well as severally for the payment of the decretal amount. It was also pleaded that no fraud was played upon the Court by the plaintiff of the former suit and all the material facts had been pleaded in the plaint including the fact that the plaintiff was claiming that it had made the payment to the stockist but the stockist had not acknowledged the receipt of any money from the plaintiff and so the plaintiff of the former suit was justified in claiming the price of the material sold from the stockist as well as from the plaintiff. 8. The following issues arising out of the aforesaid pleadings of the contesting parties came to be framed by the learned trial Court:- 1. Whether the suit has been properly instituted and signed by a duly authorized person? 2. Whether the present suit is barred by time? If so, its effect. 3. Whether the judgment and the decree dated 13.10.1993 passed in Suit No. 89 of 1987 has become final and if the principle of res judicata would be attracted? 4. Whether the impugned judgment and decree dated 13.10.1993 is liable to be set aside on the grounds mentioned in the plaint? 5. Relief. RFA 321 of 2005 Page 9 of 23 9. After examining the evidence adduced by the contesting parties and hearing the counsels from both the sides the trial Court decided issues no. 1 & 2 in favour of the plaintiff while issues no. 3 & 4 were decided against it and consequently the suit came to be dismissed. Feeling aggrieved, the plaintiff filed the present appeal. 10. Mr. Alok Mahajan, learned counsel for the plaintiff had contended that since the ex parte decree in the former suit qua the plaintiff had been obtained by the plaintiff of the former suit by playing fraud upon the Court the same was a nullity. Elaborating this ground of challenge, Mr. Mahajan had contended that a perusal of the plaint of the former suit,Ex.PW-2/13, would show that the former suit was based upon the balance amount due to the plaintiff of that suit from its stockist in the running account which the plaintiff of that suit was maintaining in the ordinary course of business and the plaintiff here had been impleaded only because it had to pay sales tax on the value of the material purchased by it since requisite Sales Tax Forms C‟ had not been furnished by it. The stockist was having regular business dealings with the plaintiff of the former suit and the transaction of sale of the material to the plaintiff here was one of the many transactions which the stockist had done for the plaintiff of the former suit. My attention was drawn to para no. 11 of the plaint in the former suit wherein the plaintiff of that suit had categorically pleaded that it was filing the suit for the recovery of its dues outstanding in the running account of the stockist. The plaintiff had placed the order upon the stockist who in turn RFA 321 of 2005 Page 10 of 23 had placed the order upon the plaintiff of the former suit and the plaintiff had made the payment also of the price of the material to the stockist and in that regard the plaintiff of the former suit had while making the delivery of the material to the plaintiff instructed the plaintiff to make the payments to its stockist only. Learned counsel, referring to the averments in the plaint of the former suit, submitted that it appeared that the stockist while placing the order of the plaintiff upon the plaintiff of the former suit had given some cheques also to the plaintiff of the former suit but those cheques had got dishonoured and the plaintiff of the former suit had after informing its stockist only about the bouncing of those cheques debited the amount of those cheques to the running account of the stockist and since in the past also the stockist‟s cheques had been bouncing the plaintiff of the former suit this time it was decided to close the dealings with the stockist and to file a recovery suit for the amount due from the stockist. Before filing that suit the plaintiff was also served with a demand notice dated 16-05-86 sent on behalf of the plaintiff of the former suit and in that notice the plaintiff had acknowledged that the plaintiff had made the payment of the material purchased by it to the stockist but since it had not furnished „C‟ Forms the plaintiff was called upon to furnish the „C‟ Forms only else it shall have to pay sales tax @ 6%. Mr. Mahajan further submitted that earlier to that also for about two years the plaintiff was never called upon by the plaintiff to make the payment of the price of the material which showed that the plaintiff of the former suit had accepted RFA 321 of 2005 Page 11 of 23 the position that money was to be paid to it by its stockist only and it had also accepted that plaintiff had made the payment to the stockist and that is why only the stockist was being called upon to clear the outstanding amount in its running account with the plaintiff of the former suit. Mr. Mahajan submitted that the entire tenor of the plaint would also show that the entire case was against the stockist and only in para no.13 a line had been added that since the plaintiff hare had received the material it was also liable for the price of the goods jointly as well as severally with the stockist. However, in the former suit the plaintiff of that suit did not place on record the demand notice dated 16.5.86 which contained the admission of the plaintiff of the former suit that the plaintiff here already made the payment to its stockist on its instructions. That concealment of the vital document, according to Mr. Mahajan, amounted to fraud upon the Court and so the decree passed in the former suit could be set aside in a separate suit by invoking the provisions of Section 44 of the Evidence Act. 11. It was also contended by Mr. Mahajan that the fact that the plaintiff had not challenged that decree or the order of rejection of the application under Order IX Rule13 CPC in appeal would not make any difference. To support his submission about the concealment of this vital document from the Court by the plaintiff of the former suit Mr. Mahajan drew my special attention to para no.15 and sub- paras no. VII & VIII of para no.28 of the plaint in the subsequent suit and also to the reply of the plaintiff of the RFA 321 of 2005 Page 12 of 23 former suit in the corresponding paras of its written statement in the present suit. Those paras are re-produced below:- “15. THAT on 16.5.1986, a legal notice was received by the plaintiff, on behalf of Defendant no.1 Company from Shri Shivraj Bahadur Nagar, Advocate, calling upon the Plaintiff to send CST Form C for the supplies made to the Plaintiff by the Defendant No. 1. Receipt of the payments by the Plaintiff to Defendant No. 3 was duly acknowledged in the said notice. A copy of the said notice is hereto annexed and marked as ANNEXURE P -11. No other demand except for furnishing of CST Form C was made, even, in this legal notice. 28(VII). THAT in para 19 of the plaint, the legal notice dated 16.5.1985(sic 1986) is pleaded as cause of action against Defendant No. 3. This legal notice does not raise any demand against Defendant No. 3 for any amount other than the non-supply of CST Forms C, or for the differential in sales tax and, therefore, the ex-parte joint and several decree against Defendant No. 3 was manifestly unwarranted, and without jurisdiction. 28(VIII). THAT it was to the specific knowledge of the Plaintiff in Suit No. 89 of 1987 that Defendant No. 3 had made the entire payment for the goods supplied to them as indented by their stockist. The Plaintiff had itself confirmed this fact, not only in its letter, but also in the legal notice issued on Defendant No.3. This factum had been deliberately and dishonestly suppressed by the Plaintiff. The Plaintiff suppressed the legal notice dated 16.5.1985(sic 1986) issued on Defendant No. 3 which was pleaded as a substantive cause of action against Defendant No. 3, and which did not make any demand on Defendant No. 3, except for non- supply of CST Form C, or differential in C.S.T. The ex-parte decree was manifestly procured by the Plaintiff (Defendant No. 1 herein) in fraud of the Court, and in fraud of Defendant No. 3 (the Plaintiff herein), and is a nullity in law, and cannot be enforced against the Plaintiff herein.” The corresponding paras of the written statement are also re-produced below:- “15. In reply to para no.15, it is not disputed that on behalf of the defendant no.1 company, Shri.S.B.Nagar, Advocate, had addressed a letter dated 16.5.1986 but it is submitted that in that letter, only CST Form was demanded. However, the factum of the plaintiff‟s paying the amount to the defendant No. 3 was wrongly stated in the said letter on the assumption that the plaintiff had made the payment to the defendant No. 3 but in fact the plaintiff had not paid the said amount to the defendant No. 3 nor the defendant No. 3 had received the same on behalf of answering defendant. Furthermore, the answering defendant later on realized that the amount in question was not paid by either the plaintiff or the defendants No. 2 and 3 to the answering defendant. RFA 321 of 2005 Page 13 of 23 28(vii). Sub Paragraph (vii) of para 28 of the plaint is wrong and misconceived. The plaintiff is wrongly construing the contents of the said notice. In fact, at that time the answering defendant was not fully aware of the correct factual position. 28(viii). Sub Paragraph (viii) of para 28 of the plaint is wrong and denied. It is wrong to say that any fact was deliberately withheld or there was a suppression of facts in the earlier filed suit by the answering defendant. It is totally wrong to say that the suit was procured by playing fraud and, therefore, the judgment and decree are a