Case: Hardesh Ores Pvt. Ltd. &amp; Another Vs. M/s. Hede &amp; Company

The representative facts giving rise to these appeals are taken from the pleadings in suit filed by Hardesh Ores Pvt. Ltd. The appellants herein, namely, Hardesh Ores Pvt. Ltd. in civil appeal arising out of SLP(C) No. 106/2007 (for short Hardesh) and Sociedade de Fomento Industrial Pvt. Ltd. in civil appeal arising out of SLP(C) No. 640/2007 (for short Fomento) respectively entered into two agreements with the respondent Hede & Co. (for short Hede) on 23.10.1996. The agreement with Hardesh was for extraction of ore from the mine in question whereas the agreement with Fomento was for purchase of minerals extracted from the mine. Both the agreements contained similar terms and conditions. As per Clause 2.1 of the Agreement, the agreement though executed on 23.10.1996 was to come into force from 1.1.1997 and was to remain in force for a period of 5 years from such date. Clause 2.2 of the agreement provided that on the expiry of every 5 years the agreement shall stand renewed for further periods of like duration at the sole option of Hardesh on the same terms and conditions as contained in the original agreement. Hardesh was entitled to exercise its option during the entire period of lease in respect of the said mine and renewals thereafter, and until such time as remaining deposits of ore in the said mine could be economically exploited. Clause 2.3 gave the right to Hardesh to terminate the agreement by giving two calendar months prior notice in writing to the respondent-Hede of its intention to do so. Clause 2.5 of the agreement provided inter alia that in case Hardesh was forced to abandon work in the said mine/land on account of any lawful or legal claim made and/or objection raised by any person including the holder of surface right or on account of any injunction being passed by any Court of Law or on account of any fault of the respondent, the agreement shall not stand terminated but the operation thereof shall stand suspended for such time. In the event such a condition/situation continued to exist for a period exceeding six calendar months, Hardesh shall be entitled to terminate the agreement after giving 30 days notice in writing. Clause 9.2 of the agreement ensured that the respondent shall not in any manner interfere or obstruct Hardesh from carrying on the work of extraction, raising, loading or delivering the ore and its other functions under and in accordance with the agreement. Clause 15 of the agreement provided that during the subsistence of the agreement, Hardesh shall solely be entitled to extract and deliver the ore from the said mine and the respondent shall not be entitled to authorise or permit any other person for that purpose nor shall the respondent either themselves or through their servants and/or agents, extract, raise, remove, load, transport or deliver the ore from the said mine unless expressly authorised or approved by Hardesh in writing. Under Clause 20 of the agreement the respondent covenanted unto the appellant that during the pendency of the indenture they shall not enter into any agreement, understanding or arrangement with any other party for working the said mine/lease for carrying on any other operation whatsoever in the said mine/lease. The agreement with Fomento is more or less in the same terms though with Fomento it is for the purchase of the iron ore extracted and to be extracted from the saidsuits for injunction were filed by the appellants herein on 4.10.2005. The reliefs claimed in the suit of Hardesh were as follows:-(i) The defendants their agents or representatives be restrained from in any manner stopping and/or obstructing the Plaintiff from entering upon the said mine and/or carrying on the work of extraction, raising, loading and/or delivering the ore from the said mine to Fomento and/or from doing any activities ancillary thereto which the Plaintiff is empowered to do under the 23.10.1996 Extraction Agreement.(ii) The Defendants their agents or representatives be restrained from entering into the mine and doing any work for extracting, raising, removing, loading, transporting, selling or delivering to any other persons iron ore from the said mine either by themselves or through their servants and/or agents.(iii) The Defendants their agents or representatives be restrained from entering into any contract/agreements and/or understanding with third parties for prospecting and/or extracting and/or raising any iron ore from the said mine or selling the ore from the said mine to any third party.(iv) That the Defendant be directed to give effect to the negative covenant contained in clause 15 and 20 of the Extraction Agreement datedthe plaint reference was made to the agreements that were entered into between the parties. It was also stated that there were privately owned lands comprised within the said mine and no consent had been obtained from the surface right owners by the respondent and the same was to be obtained subsequently, which necessitated the incorporation of Clause 2.5 in the agreement. The agreement was to commence from January 01, 1997 but on 12.12.1996 in view of an order of the Supreme Court dated 12.12.1996 prohibiting mining operations in the authorised area, mining operations could not be commenced. In view of the situation that arose on account of the order of Supreme Court which necessitated permission being sought from the Central Government for commencing mining operations, as also in view of the fact that the consent of the surface right owners had not been obtained, on the proposal of the respondent, the appellants exercising their right under Clause 15 of the agreement authorised the respondent to carry on extraction operation in the pits already opened. It is the case of the appellant that appellant had taken possession of the mine immediately after coming into effect of the contract on 1.1.1997. The respondent extracted the ore from the mine already opened pursuant to the authorisation given as per Clause 15 of the Agreement. This arrangement was of a temporary nature. Some obstruction was raised by the surface right owners in January, 1998 which was reported to the respondent. The respondent promised to sort out the problem with the surface right owners by getting their consent in writing. It is admitted in the plaint that although the said agreements were to come into force on 1.1.1997 no mining operations could be commenced in view of the order of the Supreme court datedcase of the appellant in the plaint is that the extraction agreement was initially for a period of five years from 1.1.1997 with a right of renewal at the option of the appellant on the same terms and conditions. In view of the original period of 5 years coming to an end on 31.12.2001, in terms of clause 2.2 of the agreement appellant Hardesh exercised its option to renew the said agreement for further period of 5 years. This was conveyed to the respondent vide letter date 4.12.2001 which was received by it on 7.12.2001. According to the appellant with the exercise of option by appellant Hardesh the agreement stood renewed upto 31.12.2006. However, the appellant Hardesh received a letter dated 29.12.2001 from the respondent alleging that the plaintiff-appellant was not entitled to exercise the option for renewal. The letter dated 4.12.2001 annexed to the plaint has been marked as Exh. 41 and its reply dated 31.12.2001 has been marked as Exh.appellant came to learn that the respondent was conducting the extraction in the private area where the surface rights were held by Salgaonkar sisters. This led the appellant to believe that the problem may have been sorted out with the surface right owners, namely, Salgaonkar sisters. If that was so, it was incumbent upon the respondent to inform the appellant so that the appellant could undertake the extraction work itself. The appellant had also come to learn that the first stage clearance had been granted in respect of the said mine on 17.10.2003 by the Ministry of Environment and Forest under the Forest Conservation Act, 1980 but the second stage clearance was yet to be obtained without which it was not possible to commencethis background the appellant issued a notice dated 27.4.2005 to the respondent requesting them to furnish to the appellant within 15 days of the receipt of the notice the documents evidencing the consent obtained from Salgaonkarapplication was filed on behalf of the respondent under Order VII Rule 11 of the Code of Civil Procedure submitting that there was absence of cause of action and also the plaint was barred by limitation. Subsequently, the plea of absence of cause of action was given up and only the plea of bar of limitation under the Limitation Act was pressed. It was submitted that Article 54 of the Limitation Act applied and that a suit for specific performance of the contract should have been filed within 3 years from the date the appellant-plaintiff had notice that the renewal of the agreement was refused by the respondent. In the instant case the refusal was communicated on 29.12.2001 and, therefore, the suit should have been filed within 3 yearsTrial Court by its order of 23.2.2006 allowed the application and dismissed the suit as barred by limitation. It observed that from a mere perusal of the pleadings contained in paragraphs 47 to 51 of the plaint it appeared that the appellant had asserted that the agreements were specifically enforceable. A reading of the plaint established that the foundation of the appellants suit was for specific performance of the renewal of the agreement dated 23.10.1996, the cause of action for which arose on 29.12.2001 when they received reply of the respondent denying that the agreement stood renewed. Since the suit was filed much after the expiry of 3 years from that date, it was hopelessly barred byby the order of the Trial Court the appellants preferred two appeals before the High Court which have been dismissed by the impugned order. Before the High Court it was urged that in deciding an application under Order VII Rule 11 of the CPC the contentions raised in defence or submissions advanced by the respondent-defendant about their case need not be considered and the matter must be decided on the basis of averments in the plaint and the documents annexed with the plaint. The Trial Court had fallen into an error when it referred to the defence of the defendant to determine as to whether the plaint was liable to be rejected as barred by limitation. It also noticed the submission urged on behalf of the appellant that the question of limitation was a mixed question of law and fact and, therefore, such a question could be adjudicated only in theHigh Court after appreciating the averments contained in the plaint observed that this was not merely a suit for perpetual injunction insisting upon performance of the negative covenants as contained in Clauses 15 and 20 of the agreement. The plaint clearly showed that the plaintiffs suit was in effect a suit for specific performance of the renewal of the agreement dated 23.10.1996. The cause of action for such a suit arose on 29.12.2001 when the respondent by its letter refuted the claim of the appellants for renewal w.e.f. 1.1.2001 for a period of 5 years. After considering the judgment of this Court in Srinivasa Murthys case (supra) the High Court concluded that the ratio laid down therein was squarely applicable to the instant case. It recorded a finding that the suit for injunction simplicitor was nothing but a camouflage to get over the bar of limitation, which, in fact, showed that specific performance was implicit in the pleadings contained in the plaint itself. The suit though styled as suit for injunction was, in fact, a suit for specific performance for the renewal of the agreement dated 23.10.1996 for which the cause of action had arisen on 29.12.2001. It negatived the contention urged on behalf of the appellants relying on the judgment of this Court in 2006 (5) SCC, 638 Ramesh B. Desai holding that in the instant case without going to the pleadings and the documents filed on behalf of the defence, the plaint itself and the documents annexed therewith showed that in fact it was a suit for specific performance of the agreement between the parties which appeared to be barred by the law of limitation. Accordingly it dismissed the appeals preferred by the appellants.

Reasoning:
25. Having regard to these decisions we must hold that in order to give effect to the renewal of a lease, a document has to be executed evidencing the renewal of the agreement or lease, as the case may be, and there is no concept of automatic renewal of lease by mere exercise of option by the lessee. It is, therefore, not possible to accept the submission urged on behalf of thethat by mere exercise of option claiming renewal, the lease stood renewed automatically and there was no need for executing a document evidencing renewal of the lease.26. We shall now advert to some of the facts stated in the plaint itself. The case of theis that since it was not possible to commence mining operation after taking possession of the mine, in exercise of its right under clause 15 of the agreement, it permitted the respondent to carry on mining operations confined to the pits already opened up. Its case was that under its permission the respondents were carrying on limited mining operation. The appellants were awaiting permission of the Central Government under the Forest Conservation Act as also consent of the surface right holders permitting them to carry on mining operations. When the original term of the lease expired, they exercised their option to get the lease renewed for a further period of 5 years but the respondents refuted their claim and denied the fact that the lease stood renewed automatically. The option was exercised by the appellant and refuted by the respondent in December, 2001. Thereafter nothing much appears to have happened and during this period the respondent carried on mining operations. It was only on 15.5.2005 that the appellant Hardesh wrote to the respondent stating that they had been permitted to extract ore from the broken pits in the forest area under Clause 15 of the Extraction Agreement. The appellant also permitted the respondent to sell the ore to others like Dempo or Chowgules since Fomento was not interested in purchasing the low grade ore. The communication also referred to the option exercised by the appellant for renewal for a period of 5 years from 1.1.2002 to which the respondent replied saying that they were not entitled to exercise any option. The letter then goes on to say that the appellants were led to believe that the respondent had obtained the consent from the surface right owners of the privately owned land within the mining area about which no information had been given to the appellants. Therefore, by letter dated 27.4.2005 the respondent were called upon to furnish the documents evidencing consent given by the surface right owners. It was further stated that if no documents, as aforesaid, were furnished within a period of 15 days from the date of receipt of this notice or if no reply was received, the appellants shall presume that such consent had been obtained since the respondents were doing the extraction in the area of the captioned mining lease. Since no documents were furnished pursuant to notice dated 27.4.2005, the appellants assumed that such consent had been obtained. It, therefore, withdrew the permission given to the respondents under Clause 15 of the Extraction Agreement so that the appellants could make preparation to start the extractionis not necessary to refer to the correspondence exchanged thereafter. The suits came to be filed on August 04, 2005 in which a prayer for injunction was made with a view to enforce the negative covenants contained in clauses 15 and 20 of the agreement.27. The respondent sought rejection of the plaint by filing application under Order VII Rule 11 CPC contending that the suit was barred by limitation on the face of it. It was contended before the High Court as also before us that the plaint has been cleverly drafted to give it the appearance of a simple suit for injunction to enforce the terms of Clauses 15 and 20 of the agreement which incorporated negative covenants prohibiting mining operation by anyone else except theor without its permission. It was submitted before us that the law is well settled that the dexterity of the draftsman whereby the real cause of action is camouflaged in a plaint cleverly drafted cannot defeat the right of the defendant to get the suit dismissed on the ground of limitation if on the facts, as stated in the plaint, the suit is shown to be barred by limitation.The respondent strongly relied on the decision of this Court in Srinivasa Murthys case (supra). That was a case where the plaintiffs alleged in the plaint that their father had incurred some debts and had therefore borrowed a sum of Rs.2000 from the predecessor in title of the defendants. Only by way of security for the loan advanced, a registered sale deed had been executed on 5.5.1953 with a contemporaneous oral agreement that on return of the borrowed sum with interest payable thereon @ 6% per annum a registered reconveyance deed shall thereafter be executed in favour of the borrower. The case of the plaintiff was that despite the registered sale deed, the plaintiff continued to be in possession of the suit lands. The receipt was obtained on 25.3.1987 from the defendants and the original registered sale deed dated 5.5.1953 was returned to the first plaintiff with an oral promise by the defendants to execute the registered document in favour of the plaintiff/borrower. On reading of all the averments of the plaint, it appeared that the cause of action for obtaining a registered reconveyance deed from the defendants in favour of the plaintiff first arose on 25.3.1987 when the entire loan amount was alleged to have been paid and an oral promise was given by the defendants to reconvey the suit lands. In the mutation proceedings an order was passed in favour of the defendants and the said order was confirmed in appeal by order of the Assistant Commissioner dated 28.4.1994. The cause of action is said to have arisen when the appellate authority confirmed the order of the lower authority directing mutation of the names of the defendants and then again in the first week of July, 1995 when the defendants were alleged to have made an attempt to interfere with the plaintiffs possession and enjoyment of the suit lands. The suit was filed on 26.8.1996 in which the reliefs claimed were, (a) declaration that the plaintiffs are absolute owners of the suit lands and (b) permanent injunction restraining the defendants from wrongfully entering the scheduled property and from interfering with the peaceful possession and enjoyment of scheduled lands.29. This Court after examining the pleadings observed that the foundation of the suit was that the registered sale deed dated 5.5.1953 was in fact only a loan transaction executed to secure the amount borrowed from the plaintiffs predecessor. The amount borrowed was alleged to have been fully paid back on 25.3.1987 and in acknowledgment thereof a formal receipt was obtained. At the same time there was an alleged oral agreement by the defendants to reconvey the property to the plaintiffs by registered deed. This Court held that on the basis of the averments contained in the plaint relief of declaring the registered sale deed dated 5.5.1953 to be a loan transaction and second relief of specific performance of oral agreement of recoveyance of property by registered document ought to have been claimed in the suit. A suit merely for declaration that the plaintiffs are absolute owners of the suit lands could not have been claimed without seeking a declaration that the registered sale deed dated 5.5.1953 was a loan transaction and not a real sale. The cause of action for seeking such a declaration and for reconveyance deed according to the plaintiffs own averments arose on 25.3.1987 when the plaintiff is claimed to have obtained the entire loan amount and obtained a promise from the defendants to reconvey the property. The mutation proceedings did not furnish any independent or fresh cause of action to seek a declaration of the sale deed of 5.5.1953 to be merely a loan transaction. The foundation of the suit was clearly the registered sale deed of 1953 which is alleged to be a loan transaction and the alleged oral agreement of reconveyance of the property on return of borrowedRelying upon these decisions it was contended before us that though the suit is for grant of injunction, real foundation of the suit is that there exists an agreement containing negative covenants which can be enforced by theThe relief is sought on the assumption that there is an existing agreement containing negative covenants in clauses 15 and 20 thereof, as they were in the original agreement. Counsel submitted that even the negative covenants in clauses 15 and 20 of the agreement presuppose the subsistence of the agreement and, therefore, unless thesatisfy the Court that there is a subsisting agreement, they cannot seek any relief from the Court to enforce the negative covenants contained therein.31. On the other hand, it is the case of thethat on mere exercise of option by theclaiming renewal the agreement got renewed automatically.32. We are of the view that the respondent is right in contending that enforcement of the negative covenants presupposes the existence of a subsisting agreement. As noticed earlier, the law is well settled that the renewal of an agreement or lease requires execution of a document in accordance with law evidencing the renewal. The grant of renewal is also a fresh grant. In the instant case, thedid exercise their option and claimed renewal. The respondents denied their right to claim renewal in express terms and also unequivocally stated that the agreement did not stand renewed as contended by the appellants. Having regard to these facts it must be held that a cause of action accrued to thewhen their right of renewal was denied by the respondents. This happened in December, 2001 and, therefore, within three years from that date they ought to have taken appropriate proceedings to get their right of renewal declared and enforced by a court of law and/or to get a declaration that the agreement stood renewed for a further period of 5 years upon the appellants exercising their option to claim renewal under the original agreement. Thehave failed to do so. However, the plaint proceeds on the assumption that the original agreement stood renewed including the negative covenants contained in clauses 15 and 20 of the original agreement which authorised only the appellants to extract ore from the mine with an obligation cast on theMr. Nariman contended that this case was governed not by Article 58 of the Limitation Act but, if at all, by Article 113 thereof because there is no specific article provided for enforcement of positive or negative covenants. We shall assume that he is right in contending that Article 113 may apply where enforcement of a positive or negative covenant is sought in a suit for injunction. However, in this case we have found that the real foundation for the suit was that the earlier agreement stood renewed automatically containing the same terms and conditions as in the original agreement including the negative covenants. There is neither a document to prove that the agreement stood renewed nor is there a declaration by a court that the agreement stood renewed automatically on exercise of option for renewal by the appellants. The basis for claiming the relief of injunction, namely, a subsisting renewed agreement did not exist in fact. In its absence, no relief as prayed for in the suit could be granted by the clever device of filing a suit for injunction, without claiming a declaration as to their subsisting rights under a renewed agreement, which is apparently barred by limitation.