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2025 INSC 1364

SUPREME COURT OF INDIA

DIVISION BENCH

L.K. PRABHU @ L. KRISHNA PRABHU (DIED) THROUGH LRS

Vs.

K.T. MATHEW @ THAMPAN THOMAS AND OTHERS

( Before : B.V. Nagarathna and R. Mahadevan, JJ. )

Civil Appeal No…..of 2025 (Arising out of SLP (C) No.15592 of 2023)

Decided on : 28-11-2025

A. Civil Procedure Code, 1908 — Order 38 Rule 5, Rule 8, Rule 10 — Order 21 Rule 58 — Transfer of Property Act, 1882 — Section 53 — Attachment before judgment — Scope of — Effect on prior transfer — Property already transferred by registered sale deed prior to institution of suit cannot be subject to attachment before judgment under Order 38 Rule 5 CPC — Essential condition for Order 38 Rule 5 is that property must belong to defendant on date of institution of suit — Attachment before judgment is a protective measure and does not create any charge or proprietary interest in favour of plaintiff (Rule 10). (Paras 10.1.1, 11.1, 11.3, 12, 14, 17, 18, 20)

B. Civil Procedure Code, 1908 — Order 38 Rule 8 — Order 21 Rule 58 — Adjudication of claim to property attached before judgment — Scope of claim petition — Adjudication under Rule 8 read with Order 21 Rule 58 cannot be expanded into a substantive enquiry under Section 53 of T.P. Act to declare a prior transfer as fraudulent — Such claim procedure cannot prejudice pre-existing rights of bona fide third parties. (Paras 11.2, 11.3, 13, 14, 20)

C. Transfer of Property Act, 1882 — Section 53 — Fraudulent transfer — Burden of proof — Remedy for creditor alleging fraudulent transfer prior to suit lies exclusively under Section 53 of T.P. Act, not Order 38 Rule 5 CPC — Burden to establish transfer was made with intent to defeat or delay creditors lies squarely on party alleging fraud — Mere suspicion, inadequacy of consideration, or relationship between parties cannot substitute legal proof of fraudulent intent. (Paras 4, 11.1, 15, 16)

D. Transfer of Property Act, 1882 — Attachment vis-à-vis Prior transfer/Agreement to sell — Registered sale deed executed prior to institution of suit prevails over subsequent attachment before judgment, even if attachment happens before sale deed registration is formally complete — Rights of attaching creditor cannot override contractual obligation arising from antecedent agreement for sale — Attaching creditor is entitled to attach only right, title, and interest of judgment-debtor, subject to pre-existing obligations. (Paras 17, 18, 19)

JUDGMENT

R. Mahadevan, J. – Leave granted.

2. This Civil Appeal has been preferred against the final judgment and order dated 13.02.2023 passed by the High Court of Kerala at Ernakulam[1] in RFA No. 347 of 2009, whereby the High Court disallowed the claim of title raised by the claimant / purchaser (original applicant – L.K. Prabhu @ L. Krishna Prabhu) and remanded the matter to the trial Court to determine the extent, if any, of the purchaser’s entitlement towards recovery from the debtor, including any part of genuine sale consideration, with a direction to dispose of the same, within two months from the date of appearance of the parties.

[1] Hereinafter referred to as ‘the High Court

3. The brief facts of the case are as follows:

3.1. The predecessor-in-interest of the appellants, L.K. Prabhu @ L. Krishna Prabhu (original applicant) entered into an agreement for sale on 10.05.2002 with Defendant No. 3, V. Ramananda Prabhu. The agreement proceeds to state that Defendant No. 3 acknowledged his liability of Rs. 17,25,000/- to the original applicant and undertook to discharge the same within three years. It was further stipulated that, in the event of default, Defendant No. 3 would convey 5.100 cents of property with a building situated in Ernakulam Village to the original applicant, for a consideration of Rs. 35 lakhs, upon receipt of the balance sale consideration.

3.2. According to the appellants, endorsements on the reverse of the agreement show the receipt of Rs. 3,00,000/- (by cash) and Rs. 2,50,000/- (by cheque) on 25.06.2004. As Defendant No. 3 failed to honour his commitments, a registered sale deed was executed on 28.06.2004 in favour of the original applicant, upon payment of the balance consideration. Consequently, the original applicant purchased the aforesaid property vide Document No. 3752/2004 dated 28.06.2004 on the file of SRO, Ernakulam. Ever since the purchase, the original applicant was in possession and enjoyment of the property, which has been used as 9 guest houses recognised by the Tourism Department, with all assessments standing in his name.

3.3. Subsequently, on 18.12.2004, the plaintiff / Respondent No. 1 -K.T.Mathew @ Thampan Thomas, instituted O.S. No. 684 of 2004 before the Sub Court, Ernakulam[2] for recovery of Rs. 43,82,767/- from Defendant Nos. 2 to 4. Along with the suit, he filed I.A. No. 6530 of 2004 under Order XXXVIII Rule 5 of the Civil Procedure Code, 1908[3] seeking attachment of the aforesaid property before judgment stating that it absolutely belonged to Defendant No. 3 by virtue of Partition Deed No.2725 of 1982.

[2] For short, ‘the trial Court’

[3] For short, ‘CPC’

3.4. The property in question came to be subjected to an order of attachment before judgment on 13.02.2005. The original applicant is stated to have come to know of this attachment only in 2007. Thereafter, he filed I.A. No. 2627 of 2007 under Order XXXVIII Rule 8 CPC seeking release of the property. The plaintiff / Respondent No. 1 resisted the application stating that the transfer was fraudulent, intended to defeat creditors and unsupported by genuine consideration.

3.5. The trial Court, by order dated 24.02.2009, dismissed the claim petition, holding that the transfer of the aforesaid property in favour of the original applicant was fraudulent and squarely hit by Section 53 of the Transfer of Property Act, 1882[4].

[4] For short, ‘T.P. Act’

3.6. Aggrieved thereby, the original applicant preferred RFA No. 347 of 2009 before the High Court. During the pendency of the appeal, the original applicant passed away and his legal heirs were brought on record. By judgment dated 13.02.2023, while upholding rejection of the claim petition, the High Court partly allowed the appeal with a direction to the trial Court to determine the claim relating to the amount, if any, payable to the purchaser from the debtor, including any part of the genuine sale consideration, and dispose of the same, within two months from the appearance of the parties.

3.7. Being dissatisfied with the judgment of the High Court, the appellants are before this Court with the present appeal.

4. The learned senior counsel for the appellants, at the outset, contended that attachment before judgment could not have been ordered against a property that had already been transferred prior to the institution of the suit. Relying on the principles laid down by this Court in Hamda Ammal v. Avadiappa Pathar[5], it was urged that where execution of a sale deed is complete on the date of institution of the suit, an application under Order XXXVIII Rule 5 CPC is not maintainable. The Court, while dealing with such an application, has no jurisdiction to go into the nature of the transaction or to declare a sale deed collusive under Section 53 of the T.P. Act, for that would be beyond the scope of jurisdiction in proceedings under Order XXXVIII Rule 5 CPC. The only remedy available to a decree-holder, who alleges that a transfer effected before the institution of the suit is fraudulent or collusive is to file an independent suit under Section 53 of the T.P. Act.

[5] (1991) 1 SCC 715

4.1. Continuing further, it was argued that the courts below, while considering the application for lifting the attachment, committed a manifest error in declaring the sale deed to be collusive as if they were adjudicating a suit under Section 53 of the T.P. Act. In the present case, the sale deed in favour of the original applicant was executed on 28.06.2004 by Defendant No. 3, whereas the suit was instituted only on 18.12.2004 and the order of attachment was passed subsequently on 13.02.2005. Since the transfer had been completed nearly six months prior to the institution of the suit, the application under Order XXXVIII Rule 5 CPC against the petition schedule property was, according to the counsel, wholly misconceived and not maintainable.

4.2. The learned senior counsel also submitted that the finding of the courts below that the sale deed was a collusive transfer is factually and legally unsustainable. There is no evidence on record to establish that the sale deed was fraudulently created. Under Section 53 of the T.P. Act, the burden of proof squarely lies upon the person, who alleges fraud, and mere suspicion cannot suffice. The courts below, however, proceeded only on conjectures and surmises. It is a well-settled principle of law that however suspicious a transaction may appear, suspicion cannot be a substitute for proof.

4.3. Placing reliance on Order XXXVIII Rule 10 CPC, it was urged that attachment before judgment shall not affect rights, existing prior to such attachment of persons not parties to the suit. In the instant case, the original applicant purchased the property for valuable consideration and in good faith, without being a party to any design of the vendor to defeat or delay creditors. His rights, therefore, cannot be defeated even if the transferor’s intention was fraudulent. The courts below, instead of giving effect to this settled principle, wrongly concluded that there was evidence of fraud on the part of Defendant No. 3.

4.4. The learned senior counsel further pointed out that the adverse inference drawn against the claimant for non-production of certain bank records was wholly unjustified, particularly when no application had been filed by the plaintiff for their production. On the contrary, the transaction stood supported by contemporaneous documentary evidence. Defendant No. 3 had executed an agreement dated 10.05.2002 acknowledging liability of Rs. 17.25 lakhs due to the claimant, with a stipulation to convey 5.100 cents of property in case of default. The endorsements on the reverse of the agreement evidenced receipt of Rs. 3 lakhs in cash and Rs. 2.5 lakhs by cheque on 25.06.2004, pursuant to which the registered sale deed was executed on 28.06.2004. In law, a registered sale deed prevails over a subsequent order of attachment. In this background, the sale deed in favour of the claimant, it was submitted, is unassailable and the courts below exceeded their jurisdiction by virtually converting the attachment proceedings into a full-fledged trial of a suit under Section 53 of the T.P. Act.

4.5. It was also contended that the finding of the courts below regarding delay in filing the claim petition is equally unsustainable. The observation that the original applicant came to know of the attachment in 2005 but filed the claim petition only on 12.04.2007 and that such delay strengthened the allegation of fraud is perverse and arbitrary. In rendering such a finding, the courts below overlooked the principles of the law of limitation. According to the learned senior counsel, as on the date of attachment and much earlier, the original applicant was already the owner in possession of the property and his bona fide rights could not be defeated merely on the ground of delay.

4.6. Therefore, the learned senior counsel submitted that the impugned judgment and order of the courts below are erroneous, arbitrary, and liable to be set aside.

5. In response, the learned senior counsel for Respondent No. 1 submitted that the legal position is well settled that once a property is attached, any person claiming the property to be his can prefer a claim petition before the Court. In the present case, the property was attached on 13.02.2005 and the appellant filed a claim petition only in April, 2007. Rule 8 of Order XXXVIII CPC specifically provides that such a claim shall be adjudicated in the same manner as a claim to property attached in execution of a decree for payment of money under Order XXI Rule 58.

5.1. It was further submitted that Order XXI Rule 58 expressly provides that all questions relating to right, title, and interest of the property attached are to be adjudicated by the executing court. With respect to the question, whether a plea under Section 53 of the T.P. Act can be raised by a creditor in a proceeding under Order XXI Rule 58, reliance was placed on the judgment of this Court in Abdul Shukoor Saheb v. Arji Papa Rao[6], where even prior to the 1976 Amendment to Order XXI Rule 58, it was recognised that such issues could be gone into. In that case, the debtor had effected transfer of property to a third party in 1949, and soon thereafter a suit was filed in 1950 followed by an order of attachment before judgment. The learned senior counsel pointed out that the legal position underwent a radical change post – 1977, by virtue of Act 104 of 1976, which substituted Order XXI Rule 58. The amended provision broadened the scope of adjudication, mandating that questions relating to right, title, or interest in the attached property be comprehensively decided in execution proceedings themselves, thereby eliminating the necessity of a separate suit under Section 53 of the T.P. Act.

[6] (1962) 2 SCR 55

5.2. It was argued that a creditor is fully entitled to challenge a transfer as fraudulent under Section 53 of the T.P. Act in a proceeding under Order XXXVIII Rule 8 read with Order XXI Rule 58. This principle was affirmed by this Court, recognising that creditors must be adequately protected where debtors, in collusion with third parties, effect transfers with the intent to defeat legitimate claims. In the present case, both the trial Court and the High Court, upon analysing the evidence, correctly held that the transfer of the subject property in favour of the original applicant was a fraudulent transaction squarely falling within the ambit of Section 53 of the T.P. Act.

5.3. The learned senior counsel further submitted that the appellants’ reliance on Hamda Ammal v. Avadiappa Pathar (supra) is misplaced. In that decision, this Court observed that Order XXXVIII Rule 5 would not apply where a sale deed had already been executed prior to the institution of the suit. However, the Court carved out an express exception for cases involving Section 53 of the T.P. Act, thereby recognising that fraudulent transfers stand on a different footing and may be adjudicated within the framework of attachment proceedings.

5.4. Therefore, it was urged that the consistent judicial interpretation has been to safeguard the rights of creditors. A narrow construction of Order XXXVIII Rules 5 and 8 read with Order XXI Rule 58 would render creditors remediless, thereby enabling debtors to alienate their properties in collusion with third parties to defeat lawful claims. Such a construction would frustrate the very protection contemplated under Section 53 of the T.P. Act. The correct position in law, according to the learned senior counsel, is that fraudulent transfers must be adjudicated within the framework of Order XXXVIII Rule 8 read with Order XXI Rule 58 CPC, and once fraud is established, the property remains liable to attachment notwithstanding any prior transfer.

5.5. In light of these submissions, the learned senior counsel prayed that the appeal be dismissed as being devoid of merits.

6. We have heard the learned senior counsel appearing on behalf of both parties and perused the materials available on record.

7. On 14.07.2023, when the matter was taken up for consideration, this Court directed the parties to maintain status quo until further orders.

8. Seemingly, the registered sale deed in favour of the original applicant was executed on 28.06.2004. The plaintiff / Respondent No. 1 filed O.S. No. 684 of 2004 only on 18.12.2004. The order of attachment before judgment under Order XXXVIII Rule 5 CPC came to be passed subsequently on 13.02.2005. Thus, as on the date of filing of the suit, the property already stood transferred to the original applicant. Nevertheless, both the trial Court and the High Court rejected the claim petition filed by the original applicant under Order XXXVIII Rule 8 CPC, holding that the sale deed was a fraudulent transfer within the meaning of Section 53 of the T.P. Act.

9. The principal issue that arises for consideration in this appeal is, whether the registered sale deed dated 28.06.2004 executed in favour of the original applicant constitutes a fraudulent transfer under Section 53 of the T.P. Act, and consequently, whether the attachment before judgment ordered by the trial Court in O.S. No. 684 of 2004 could validly operate against the property in question.

10. At the outset, it is necessary to examine the relevant statutory provisions applicable to the present case.

10.1. Order XXXVIII Rules 5 to 10 CPC lay down a complete scheme governing attachment before judgment, and read as follows:

‘5. Where defendant may be called upon to furnish security for production of property-(1) Where, at any stage of a suit, the Court is satisfied, by affidavit or otherwise, that the defendant, with intent to obstruct or delay the execution of any decree that may be passed against him,-

(a) is about to dispose of the whole or any part of his property, or

(b) is about to remove the whole or any part of his property from the local limits of the jurisdiction of the Court, the Court may direct the defendant, within a time to be fixed by it, either to furnish security, in such sum as may be specified in the order, to produce and place at the disposal of the Court, when required, the said property or the value of the same, or such portion thereof as may be sufficient to satisfy, the decree, or to appear and show cause why he should not furnish security.

(2) The plaintiff shall, unless the Court otherwise directs specify the property required to be attached and the estimated value thereof.

(3) The Court may also in the order direct the conditional attachment of the whole or any portion of the property so specified.

(4) If an order of attachment is made without complying with the provisions of sub-rule (1) of this rule such attachment shall be void.

6. Attachment where cause not shown or security not furnished –(1) Where the defendant fails to show cause why he should not furnish security, or fails to furnish the security required, within the time fixed by the Court, the Court may order that the property specified, or such portion thereof as appears sufficient to satisfy any decree which may be passed in the suit, be attached.

(2) Where the defendant shows such cause or furnishes the required security, and the property specified or any portion of it has been attached, the Court shall order the attachment to be withdrawn, or make such other order as it thinks fit.

7. Mode of making attachment-Save as otherwise expressly provided, the attachment shall be made in the manner provided for the attachment of property in execution of a decree.

8. Adjudication of claim to property attached before judgment-Where any claim is preferred to property attached before judgment, such claim shall be adjudicated upon in the manner hereinbefore provided for the adjudication of claims to property attached in execution of a decree for the payment of money.]

9. Removal of attachment when security furnished or suit dismissed-Where an order is made for attachment before Judgment, the Court shall order the attachment to be withdrawn when the defendant furnishes the security required, together with security for the cost of the attachment, or when the suit is dismissed.

10. Attachment before judgment not to affect rights of strangers, nor bar decree -holder from applying for sale-Attachment before judgment shall not affect the rights, existing prior to the attachment, of persons not parties to the suit, nor bar any person holding a decree against the defendant from applying for the sale of the property under attachment in execution of such decree.’

10.1.1. Rule 5 empowers the Court, where it is satisfied that the defendant, with intent to obstruct or delay the execution of any decree, is about to dispose of or remove his property, to direct him to furnish security or to show cause, and to order conditional attachment of the property. Rule 6 provides that if the defendant fails to show cause or to furnish security, the Court may order attachment, whereas compliance requires the attachment to be withdrawn. Rule 7 prescribes that such attachment shall be made in the same manner as in execution under Order XXI. Rule 8 directs that any claim or objection to property attached before judgment shall be adjudicated as if it were a claim in execution. Rule 9 provides for withdrawal of attachment when the defendant furnishes security or when the suit is dismissed. Rule 10 safeguards the rights of strangers by clarifying that attachment before judgment does not affect pre-existing rights of non-parties nor create any proprietary interest in favour of the plaintiff. Thus, the scheme of Rules 5 to 10 is self-contained, balancing the plaintiff’s right to secure the decree with safeguards for the defendant and protection of third-party rights. Attachment before judgment is therefore only a protective measure and does not create any charge or ownership in favour of the plaintiff.

10.2. A significant change was introduced by the Amendment Act 104 of 1976. Order XXI Rule 58 was substituted to enlarge the scope of adjudication of claims and objections. Earlier, a claimant was required to institute a separate suit under Order XXI Rule 63 or invoke Section 53 of the T.P. Act. The amended Rule now mandates that all questions relating to right, title, or interest of the property attached be determined in execution itself. By virtue of Order XXXVIII Rule 8, this procedure equally applies to attachments before judgment, thereby extending the same protection to third-party claimants. For ease of reference, Order XXI Rule 58 is extracted below:

‘Rule 58. Adjudication of claims to, or objections to attachment of, property-

(1) Where any claim is preferred to, or any objection is made to the attachment of, any property attached in execution of a decree on the ground that such property is not liable to such attachment, the Court shall proceed to adjudicate upon the claim or objection in accordance with the provisions herein contained: Provided that no such claim or objection shall be entertained-

(a) where, before the claim is preferred or objection is made, the property attached has already been sold; or

(b) where the Court considers that the claim or objection was designedly or unnecessarily delayed.

(2) All questions (including questions relating to right, the title or interest in the property attached) arising between the parties to a proceeding or their representatives under this rule and relevant to the adjudication of the claim or objection, shall be determined by the Court dealing with the claim or objection and not by a separate suit.

(3) Upon the determination of the questions referred to in sub-rule (2), the Court shall, in accordance with such determination,-

(a) allow the claim or objection and release the property from attachment either wholly or to such extent as it thinks fit; or

(b) disallow the claim or objection; or

(c) continue the attachment subject to any mortgage, charge or other interest in favour of any person; or

(d) pass such order as in the circumstances of the case it deems fit.

(4) Where any claim or objection has been adjudicated upon under this rule, the order made thereon shall have the same force and be subject to the same conditions as to appeal or otherwise as if it were a decree.

(5) Where a claim or an objection is preferred and the Court, under the proviso to sub-rule (1), refuses to entertain it, the party against whom such order is made may institute a suit to establish the right which he claims to the property in dispute; but, subject to the result of such suit, if any, an order so refusing to entertain the claim or objection shall be conclusive.’

Thus, the effect of the amended Rule 58 is that the Executing Court shall adjudicate all questions relating to right, title, or interest of the property attached between the parties to the claim proceedings, and its determination has the force of a decree. By virtue of Rule 8, this scheme applies equally to claims regarding property attached before judgment, thereby ensuring that third parties asserting independent rights in such property have their claims adjudicated on merits, without being driven to a separate suit. Rule 10 further reinforces this position by clarifying that an attachment before judgment does not affect pre-existing rights of strangers nor does it create any substantive charge in favour of the plaintiff.

10.3. Section 53 of the T.P. Act deals with fraudulent transfer and reads as follows:

’53. Fraudulent transfer.- (1) Every transfer of immoveable property made with intent to defeat or delay the creditors of the transferor shall be voidable at the option of any creditor so defeated or delayed.

Nothing in this sub-section shall impair the rights of a transferee in good faith and for consideration.

Nothing in this sub-section shall affect any law for the time being in force relating to insolvency.

A suit instituted by a creditor (which term includes a decree -holder whether he has or has not applied for execution of his decree) to avoid a transfer on th e ground that it has been made with intent to defeat or delay the creditors of the transferor, shall be instituted on behalf of, or for the benefit of, all the creditors.

(2) Every transfer of immoveable property made without consideration with intent to defraud a subsequent transferee shall be voidable at the option of such transferee.

For the purposes of this sub-section, no transfer made without consideration shall be deemed to have been made with intent to defraud by reason only that a subsequent transfer for consideration was made.’

The above provision thus contemplates two essential elements – (i) a transfer of immovable property made with the intent to defeat or delay creditors, which renders such transfer voidable at the option of the creditors so defeated or delayed; and (ii) the protection accorded to transferees in good faith and for valuable consideration, whose rights are expressly saved under the proviso to the sub-section. Further, under sub-section (2), every transfer of immovable property made without consideration and with intent to defraud a subsequent transferee shall be voidable at the option of such subsequent transferee. However, for the purposes of this sub-section, a transfer made without consideration shall not be deemed to have been made with intent to defraud merely because a subsequent transfer for consideration has been effected.

11. Having considered the rival submissions and the relevant provisions of law, it becomes necessary to analyse the scope and effect of Order XXXVIII Rules 5 and 8 in conjunction with Order XXI Rule 58 CPC and Section 53 of the T.P. Act.

11.1. The scope of Rule 5 is confined to securing the plaintiff’s prospective decree by preventing the defendant from frustrating execution through alienation or concealment of his property during pendency of the suit. The essential condition, however, is that the property sought to be attached must belong to the defendant on the date of institution of the suit; property already transferred prior to the suit cannot be attached under this provision. In cases where such prior transfer is alleged to be fraudulent, the remedy lies under Section 53 of the T.P. Act and not under Order XXXVIII Rule 5 CPC.

11.2. Rule 8 incorporates the adjudicatory mechanism of Order XXI Rule 58 CPC in respect of claims to property attached before judgment. While the amended Rule 58 of Order XXI CPC enlarges the scope of inquiry, such adjudication must nonetheless be based on proper pleadings and evidence.

11.3. The combined reading of Rules 5 to 10 makes it clear that Rule 5 operates at the stage of ordering attachment, while Rule 8 read with Order XXI Rule 58 governs the stage of adjudication of third-party objections. Rule 10 emphasises that attachment before judgment does not create any charge or proprietary interest for the plaintiff and that pre-existing rights of strangers remain unaffected. Thus, attachment before judgment is only an ancillary, protective relief to secure the decree, subject to adjudication of independent claims, and cannot prejudice pre-existing rights or confer any substantive advantage upon the plaintiff beyond securing satisfaction of the decree.

12. Applying the above legal framework to the facts of the present case, it is apparent that the registered sale deed in favour of the original applicant was executed on 28.06.2004 i.e., several months prior to the institution of the suit in O.S. No. 684 of 2004. Consequently, at the time of filing of the suit, the property stood transferred and was no longer in the possession or ownership of Defendant No. 3. In such circumstances, the essential condition for invoking attachment before judgment under Order XXXVIII Rule 5 CPC – that the property belongs to the defendant on the date of institution of the suit – is absent. The plaintiff’s remedy, if any, lies exclusively under Section 53 of the T.P. Act, which provides for setting aside a transfer made with intent to defraud creditors.

13. While the trial Court and High Court examined the claim petition under Order XXXVIII Rule 8 CPC read with Order XXI Rule 58 CPC, the adjudication of the sale deed’s validly as a fraudulent transfer necessarily required determination under Section 53 of the T.P. Act. The mechanism under Rule 8, being a protective procedure designed for third-party claimants asserting independent rights in the property attached before judgment, cannot be expanded to transform the attachment procedure into a substantive enquiry under Section 53 of the T.P. Act. Therefore, the attachment before judgment ordered on 13.02.2005 could not extend to the property already transferred to the original applicant on 28.06.2004.

14. In the present case, the sale deed executed on 28.06.2004 in favour of the original applicant was duly registered and the transfer stood completed prior to the institution of the suit. The documents available on record do not demonstrate that the original applicant was a party to any collusion or mala fide transaction with Defendant No. 3 to defraud the plaintiff. The allegation of fraud, therefore, falls squarely within the ambit of Section 53 of the T.P. Act and cannot be addressed merely through a claim petition under Order XXXVIII Rule 8 CPC. Attachment before judgment being an extraordinary and protective remedy, cannot extend to property already alienated to a bona fide third party prior to the filing of the suit. Any adjudication in the claim petition that ignores this statutory pre-condition would be contrary to the scheme of the Code and settled principles governing attachment before judgment.

15. The onus to establish that the transfer was made with an intent to defeat or delay creditors lies squarely upon the party alleging fraud. Mere suspicion, inadequacy of consideration or the existence of a relationship between the parties, cannot, by themselves, constitute proof of such intent. Moreover, while the conclusion for fraud must rest on established facts and legitimate inferences drawn therefrom, every device or artifice need not be fully unravelled to sustain a finding of fraud. In the present case, Respondent No. 1 (creditor) has failed to produce cogent evidence showing that the dominant purpose of the impugned transfer was to defeat his rights. The circumstances relied upon, such as community ties, financial difficulties of Defendant No. 2, and partial cash consideration, may give rise to suspicion, but suspicion cannot substitute legal proof. The property was transferred for stated consideration under a duly registered deed and possession duly followed. There is no evidence to prove that the transfer rendered the transferor insolvent or that the creditor suffered any actual and irretrievable prejudice.

16. Though it was contended on behalf of Respondent No. 1 that the major portion of the consideration comprised adjustment of earlier debts (Rs.23,93,000/-) and discharge of bank dues (Rs.8,57,000/-), the same does not invalidate the transaction. Section 25 of the Indian Contract Act, 1872, recognizes past liability as valid consideration. Further, the existence of an antecedent agreement dated 10.05.2002 and subsequent dealings between the parties sufficiently establish that the sale deed was supported by valuable consideration. The contention that the agreement dated 10.05.2002 contemplated transfer only if dues remained unpaid till 2005 whereas the sale deed was executed in 2004 merely indicates that parties advanced the timeline of performance. Such alteration in contractual arrangement, by mutual consent, is common and does not ipso facto render the transfer fraudulent. Significantly, under Section 53(1) of the T.P. Act, the transaction would be voidable only if it is proved to have been made with an intend to defeat or delay creditors. No such fraudulent intent has been proved in the present case.

17. It is well settled that attachment before judgment cannot extend to properties which have already been alienated prior to the institution of the suit. In Vannarakkal Kallalathil Sreedharan vs. Chandramaath Balakrishnan[7] this Court held that an agreement for sale creates an obligation attached to the ownership of the property and an attaching creditor is entitled to attach only the right, title, and interest of the judgment debtor. If an agreement for sale is entered into before attachment, the attaching creditor cannot ignore such obligation and proceed to bring the property to sale as if it remained the absolute property of the judgment debtor. The rights of the attaching creditor cannot override the contractual obligation arising from the antecedent agreement.

[7] (1990) 3 SCC 291

Accordingly, the sale would not be subject to the attachment and the purchaser would get good title despite attachment. The following paragraphs from the said judgment are relevant in this regard:

‘5. We may first draw attention to some of the relevant statutory provisions bearing on the question. Order XXXVIII Rule 10 of the Code of Civil Procedure provides that attachment before judgment shall not affect the rights existing prior to the attachment of persons not parties to the suit. Under Section 40 of the Transfer of Property Act, a purchaser under a contract of sale of land is entitled to the benefit of an obligation arising out of that contract and it provides that that obligation may be enforced inter alia against a transferee with notice. Section 91 of the Trusts Act also recognises this principle that the transferee with notice of an existing contract of which specific performance can be enforced must hold the property for the benefit of the party to the contract. These are equitable rights though not amounting to interest in immovable property within the meaning of Section 54 of the Transfer of Property Act which declares that a contract of sale does not create an interest in the property. On this line of reasoning it has been held by the Madras High Court that the purchaser of an antecedent agreement gets good title despite attachment. See Paparaju Veeraraghavayya v. Killaru Kama Devi and others, AIR 1935 Mad. 193, Veerappa Thevar & Ors. v. C.S. Venkataramma Aiyar & Ors., AIR 1935 Mad. 872 and Angu Pillai v. M.S.M. Kasiviswanathan Chettiar, AIR 1974 Mad. 16.

6. There is a useful parallel from the decision of the Calcutta High Court in Purna Chandra Basak v. Daulat Ali Mollah, AIR 1973 Cal. 432 wherein it was observed that the attaching creditor attaches only the right, title and inter- est of the debtor and attachment cannot confer upon him any higher right than the judgment-debtor had at the date of attachment.

7. Hence, under a contract of sale entered into before attachment, the conveyance after attachment in pursuance of the contract passes on good title inspite of the attachment. To the same effect are the decisions of the Bombay High Court in Rango Ramachandra Kulkarni v. Gurlingappa Chinnappa Muthal AIR 1941 Bom. 198 and Yashvant Shankjar Dunakhe v. Pyaraji Nurji Tamboli, AIR 1943 Bom. 145. The High Court of Travancore- Cochin in Kochuponchi Varughese v. Quseph Lonan, AIR 1952 Travancore-Cochin 467 has also adopted the same reasoning.

8. The Punjab & Haryana High Court however, has taken a contrary view in Mohinder Singh, Etc., v. Nanak Singh, Etc., AIR 1971 P & H 381. It has been held that a sale in pursuance of a pre-attachment agreement is a private alienation of property and must be regarded as void against the claim ot the attaching creditor. In support of this proposition, Section 64 of the Code of Civil Procedure was relied upon which according to the High Court was intended to protect the attaching creditor against private alienation. This was also the observation of the Lahore High Court in Buta Ram & Ors. v. Sayyed Mohammad, AIR 1935 Lahore 71.

9. In our opinion, the view taken by the High Courts of Madras, Bombay, Calcutta and Travancore-Cochin in the aforesaid cases appears to be reasonable and could be accepted as correct. The agreement for sale indeed creates an obligation attached to the ownership of property and since the attaching creditor is entitled to attach only the right, title and interest of the judgment-debtor, the attachment cannot be free from the obligations incurred under the contract for sale. Section 64 CPC no doubt was intended to protect the attaching creditor, but if the subsequent conveyance is in pursuance of an agreement for sale which was before the attachment, the contractual obligation arising therefrom must be allowed to prevail over the rights of the attaching creditor. The rights of the attaching creditor shall not be allowed to override the contractual obligation arising from an antecedent agreement for sale of the attached property. The attaching creditor cannot ignore that obligation and proceed to bring the property to sale as if it remained the absolute property of the judgment-debtor. We cannot, therefore, agree with the view taken by the Punjab and Haryana High Court in Mohinder Singh’s case AIR 1971 P & H 381.’

18. The principle that attachment before judgment cannot override a prior completed transfer was categorically laid down in Hamda Ammal v. Avadiappan Pathar (supra). In that case, the appellant purchased the suit property under a sale deed executed on 09.09.1970, though the deed was registered later on 26.10.1970. Meanwhile, the creditor had filed a suit on 13.09.1970 and obtained attachment before judgment on 17.09.1970. The issue before this Court was whether the prior executed though subsequently registered sale deed would prevail over the attachment. Answering in favour of the purchaser, this Court held that execution of the sale deed, even though registration followed later, operated to transfer the property prior to attachment.

It was held thus:

‘2. … Order XXXVIII Rule 5 CPC… would not apply where the sale deed has already been executed by the defendant in favour of a third person. A transaction of sale having already taken place even prior to the institution of a suit cannot be said to have been made with the intention to obstruct or delay the execution of any decree. It would be a different case altogether if a creditor wants to assail such transfer by sale under Section 53 of the Transfer of Property Act, 1882 on the ground of a fraudulent transfer. Such suit would be decided on totally different considerations in accordance with the provisions of Section 53 of the Act ..’

Further, the Court concluded:

‘6. … The property in question admittedly belonged to the defendant -judgement debtors (vendors) and once it is held that a sale deed had already been executed by them. and only its registration remained, then neither the attachment before judgment nor a subsequent attachment or court sale. can confer any title by preventing the relation back. The fact that the document of sale had not been registered until after the attachment makes no difference.’

And, finally:

’12. .. We are of the confirmed opinion that a sale deed having been executed prior to attachment before judgment, though registered subsequently will prevail over attachment before judgment.’

19. In Rajender Singh v. Ramdhar Singh[8], this Court reiterated that an agreement for sale creates an equitable obligation attached to the ownership of property. Consequently, an attaching creditor cannot acquire rights higher than those of the judgment-debtor; the attachment is always subject to pre-existing contractual obligations such as an agreement to sell executed prior to attachment. The Court reaffirmed that once a valid agreement to sell exists, the attaching creditor takes the property encumbered by that contractual obligation, even if the creditor had no notice of the agreement. Thus, an attachment does not override prior contractual obligations. The following paragraphs are pertinent in this regard:

’18. The respondents had also urged another ground to set aside the same, namely, that there were two deeds of baibeyana (agreement to sell), one of 9-2-1974 and another of 16-2-1974 prior to the date of attachment, namely, 6-3-1974. The respondents had contended before the executing court that these agreements should prevail over the attachment but this plea was rejected by the Subordinate Judge on the ground that the attachment does prevail over the pre-existing contract to sell even though the attaching creditor has no notice of a contract to sell. The very same plea was advanced before the learned Single Judge of the High Court but the same was not considered as the decision was taken in the matter having regard to non-compliance with Section 136 of the Code of Civil Procedure and the learned Single Judge felt that it was not necessary for him, in this case, to consider that plea.

[8] (2001) 6 SCC 213 : 2001 SCC OnLine SC 784

19. As we have taken a contrary view regarding Section 136, the matter has to go back to the learned Single Judge to consider the plea raised by the respondents regarding the two agreements allegedly executed by them. It may be noted that as regards the question whether the agreement entered into by the judgment-debtor prior to the attachment of property in execution of a decree would prevail over the attachment itself, was considered by this Court in Vannarakkal Kallalathil Sreedharan v. Chandramaath Balakrishnan [(1990) 3 SCC 291] and this Court approved the views expressed in Paparaju Veeraraghavayya v. Killaru Kamala Devi [AIR 1935 Mad 193], Veerappa Thevar v. C.S. Venkatarama Aiyar [AIR 1935 Mad 872 : ILR 59 Mad 1] , Angu Pillai v. M.S.M. Kasiviswanathan Chettiar [AIR 1974 Mad 16 : (1973) 1 MLJ 334], followed by Rango Ramchandra Kulkarni v. Gurlingappa Chinnappa Muthal [AIR 1941 Bom 198 : 43 Bom LR 206], Yeshvant Shankar Dunakhe v. Pyaraji Nurji Tamboli [AIR 1943 Bom 145 : 45 Bom LR 208] and Kochuponchi Varughese v. Ouseph Lonan [AIR 1952 TC 467] and held that the agreement for sale creates an obligation attached to the ownership of property and since the attaching creditor is entitled to attach only the right, title and interest of the judgment-debtor, the attachment cannot be free from the obligations incurred under the contract for sale.’

20. In view of the foregoing, it is evident that:

(a) The original applicant’s sale deed dated 28.06.2004 pre-dates the institution of the suit, and therefore, the property did not belong to the defendant on the date of filing of O.S. No. 684 of 2004;

(b) Attachment before judgment under Order XXXVIII Rule 5 CPC could not be extended to the property already transferred;

(c) Any claim under Order XXXVIII Rule 8 read with Order XXI Rule 58 CPC must be adjudicated recognizing the protective and procedural nature of attachment before judgment, without prejudicing the pre-existing rights of bona fide third parties;

(d) Determination of whether the sale deed is fraudulent is exclusively governed by Section 53 of the T.P. Act and the claim petition procedure under Rule 8 cannot substitute or override the statutory safeguards and requirements of such substantive proceedings.

21. Thus, this Court holds that the registered sale deed dated 28.06.2004 executed in favour of the original applicant is valid. Consequently, the attachment before judgment ordered on 13.02.2005 could not legally extend to the said property. The claim petition filed by the original applicant under Order XXXVIII Rule 8 CPC read with Order XXI Rule 58 CPC is therefore sustainable. Accordingly, the impugned judgment and order passed by the courts below are set aside.

22. In the result, the Civil Appeal stands allowed. There is no order as to costs.

23. Pending Application(s), if any, stand disposed of.

2025 INSC 1279

SUPREME COURT OF INDIA

DIVISION BENCH

MMTC LIMITED

Vs.

ANGLO AMERICAN METALLURGICAL COAL PVT. LIMITED

( Before : Sanjay Kumar and K. V. Viswanathan, JJ. )

Civil Appeal No. 13321 of 2025 (@ Special Leave Petition (Civil) No. 14832 of 2025)

Decided on : 03-11-2025

A. Civil Procedure Code, 1908 (CPC) — Section 47 — Objections in execution proceedings — Limited scope — Objections under Section 47 CPC are maintainable against an arbitral award, but only on very narrow grounds, such as jurisdictional infirmity or voidness, not errors of fact or law.

B. Arbitration and Conciliation Act, 1996 — Section 34 & 37 — Object of provisions is to provide finality to disputes — Repeated challenges to an arbitral award during execution proceedings are not permitted and amount to abuse of process, unless prima facie grounds for voidness or jurisdictional infirmity are established.

C. Fraud — Effect of — Fraud unravels everything and vitiates judgments, contracts, and transactions — However, allegations of fraud must be distinctly pleaded and proved, and cannot be a mere attempt to wriggle out of a concluded award.

D. Fiduciary Duty — Breach of — Business Judgment Rule — Directors and senior managerial personnel are expected to act with reasonable business judgment, and courts will not second-guess their decisions if they are within a range of reasonableness, even if hindsight suggests otherwise; there must be cogent evidence to prove breach of duty.

E. First Information Report (FIR) — Evidentiary Value — An FIR is merely the initiation of a criminal process and represents one party’s version; its mere pendency does not render an executable award inoperable, especially when no prima facie case of fraud warranting voidness of the award is made out.

F. Government/Public Sector Corporations — Decision-making — A certain play in the joints is necessary for day-to-day functioning; officials should not be shackled by fear of being second-guessed with hindsight, as it can lead to policy paralysis and deter talent, particularly in public sector entities.

JUDGMENT

 

K.V. Viswanathan, J. – Leave granted.

2. The present appeal calls in question the correctness of the judgment dated 09.05.2025 passed by a learned Single Judge of the Delhi High Court in OMP (ENF.) (COMM.) No. 19 of 2018. By the said judgment, the High Court dismissed the objections filed by the appellant-MMTC Limited [for short “MMTC”] under Section 47 of the Code of Civil Procedure, 1908 [“CPC”] as well as an application under Order XXI Rule 29 of CPC seeking stay of the enforcement proceedings. The High Court further directed that the amount deposited by MMTC shall be withdrawn by the decree holder-Anglo American Metallurgical Coal Pvt. Limited [for short “the Anglo”] along with the interest accrued. Aggrieved, the appellant-MMTC is in appeal by way of special leave.

BRIEF FACTS:-

3. The respondent-Anglo, on 24.09.2012, invoked the arbitration clause in the Long Term Agreement [LTA] dated 07.03.2007 entered into between MMTC and Anglo. The claim in the arbitration was for damages on account of the unlifted quantity of coal contracted by the appellant-MMTC. The damages were computed based on the difference in the price between the contracted price of US$ 300 Per Metric Tonne [for short “PMT”] and the market price of US$ 126 PMT, multiplied by the unlifted quantity. In the arbitration, by an Award dated 12.05.2014, Anglo was awarded a sum of US$ 78.720 million along with interest and costs by a majority of 2:1.

4. By a judgment dated 10.07.2015, challenge under Section 34 of the Arbitration and Conciliation Act, 1996 [for short the A&C Act] failed before a learned Single Judge of the High Court of Delhi. However, the Division Bench, by its judgment dated 02.03.2020, allowed MMTCs appeal under Section 37 of the A&C Act and set aside the arbitral Award along with the decision of the learned Single Judge. By a judgment of 17.12.2020, this Court allowed the Civil Appeal filed by Anglo and after setting aside the judgment of the Division Bench restored the judgment of the learned Single Judge and the arbitral Award.

5. On 29.07.2021, a review petition filed by MMTC, which was admitted on the limited issue of interest, was disposed of by reducing the pendente lite and future interest to 6%. The remaining findings were not disturbed. On 19.04.2022, a clarification application filed by MMTC was disposed of by clarifying that MMTC would be liable to pay interest @ 6% from the date of reference till the date of payment and for the period from the date of breach till the date of reference, interest was to be paid @ 7.5%.

6. In the meantime, the respondent filed Execution Petition seeking enforcement of the Award. Post the disposal of the clarification application, on 20.07.2022, MMTC deposited a sum of Rs.1,087/- crores with the High Court of Delhi at New Delhi. On 28.11.2022, E.A. No. 3728 of 2022 in the Execution Petition was filed by MMTC seeking to stay the operation and implementation of the Award till the Central Bureau of Investigation [CBI] concludes its investigation into the matter. It transpires that on 02.09.2022 and 23.11.2022, complaints were filed by MMTC against persons including its erstwhile employees alleging fraud and collusion with the respondent in relation to the price fixed for coal for the 5th Delivery Period. On 09.01.2023, the CBI, it transpires registered a preliminary enquiry.

7. When the matter stood thus, on 10.01.2024, MMTC filed its objections under Section 47 of the CPC. In the objections, the primary contentions of MMTC were:-

7.1 Despite having complete knowledge of the recession in the market due to the collapse of the Lehman Brothers, the officials of MMTC in collusion and conspiracy with the officials of Anglo contracted the price of coal for the 5th delivery period at US$ 300 PMT. This price was 3 times more than the price of US$ 96.40 PMT which prevailed during the 4th delivery period.

7.2 Viewed in the background of the fact that Neelachal Ispat Nigam Ltd (for short the “NINL”) for whom the coal was sourced did not have pressing requirement of the ultimately contracted quantity and considering the fact that there was room for negotiation of the price, the contention of collusion and conspiracy became stark.

7.3 The fraud could not be discovered earlier since Shri Ved Prakash, who was Chief General Manager in 2008, became Director (Marketing) in 2010 and ultimately Chairman-cum-Managing Director in 2015, remained at the helm of affairs till 29.02.2020. The said officer was in control of the arbitral proceedings as well as at Section 34 and Section 37 stage.

7.4 When the Division Bench under Section 37 of the A&C Act set aside the Award on 02.03.2020, there was no occasion to examine the file to unearth the conspiracy. On 17.12.2020, when this Court set aside the judgment of the Division Bench and reinstated the Award, the matter was examined and on 24.02.2021, the then CMD of MMTC issued a confidential note requesting the Chief Vigilance Officer to seek permission of the Government of India to enquire into the matter.

7.5 It was thereafter that the matter was enquired into, and a decision was taken to refer the matter to the CBI and a preliminary enquiry came to be registered on 09.01.2023 by the CBI.

8. A detailed reply was filed by Anglo taking objections on maintainability and limitation. Primarily, the reply to the objections on the aspect of fraud were set out as under:-

8.1 Under the LTA entered into on 07.03.2007 between MMTC and Anglo, in each of the 5 delivery periods of the contract, Anglo was to supply specified quantity of coking coal.

8.2 After the 3rd delivery period, MMTC had an option to extend the Agreement by two years on condition that the option was to be exercised latest by 31.01.2007.

This was as per Clause 1.3. The 3rd delivery period was to expire on 30.06.2007. Clause 1.3 reads as under: –

 

“1.3 The PURCHASER had the option to extend the duration of the Agreement by two more years, at its sole discretion and the Purchaser to exercise its option for extending the Agreement by two more years or otherwise by 31st January, 2007. In case the PURCHASER decides to exercise such option, at its sole discretion, the Agreement shall have two more Delivery Periods as follows:

Fourth Delivery Period: 1st July 2007 to 30th June 2008

Fifth Delivery Period: 1st July 2008 to 30th June 2009″

 

8.3 The option was indeed exercised before 31.01.2007, on 30.01.2007, with the execution of the Memorandum of Understanding [MoU]. Option once exercised, MMTC was obliged to pick up the stipulated quantities at the stipulated price during the 4th and 5th delivery periods. The 4th delivery period was from 01.07.2007 to 30.06.2008 and the 5th delivery period was from 01.07.2008 to 30.06.2009. There could be postponement of delivery at the option of the purchaser for a period of three months following each delivery period.

8.4 As per the contract, the price was linked with the price fixed for two other Public Sector Undertakings, the Steel Authority of India Limited (SAIL) and the Rashtriya Ispat Nigam Limited (RINL). For SAIL and RINL, the prices were negotiated by the Government’s Empowered Joint Committee and those contracts were long term contracts for purchase up to 2.5 million MT per annum as opposed to MMTCs contracted quantity of 4,66,000 Metric Tonnes per annum.

8.5 Addendum No. 2 dated 20.11.2008 to the LTA was only to firm up the terms and conditions. Shri Ved Prakash was a junior member of the Committee in 2008 and by the time he became CMD of MMTC on 14.03.2015 (as mentioned in the objections), the Award had been pronounced by the Arbitral Tribunal on 12.05.2014.

8.6 The dispute commenced in March 2010 and culminated with the judgment of this Court on 17.12.2020 and the allegation of fraud is only to escape the liability under the Award.

9. By 28.10.2024, when the judgment was reserved in the Section 47 objections, MMTC had filed a Civil Suit praying that the Award dated 12.05.2014 is void and unenforceable. It further transpires that, on 29.07.2025, the said Civil Suit has been dismissed as not maintainable and a Regular First Appeal being RFA (OS) (Comm) No. 28 of 2025 is pending before the High Court.

10. On 11.11.2024, MMTC filed an application under Order XXI Rule 29 CPC. By the impugned judgment, the Executing Court dismissed the objections under Section 47 as well as the Order XXI Rule 29 application seeking stay of execution, pending the suit. Aggrieved, MMTC has filed the present Appeal, by way of special leave, and this is how the matter presents itself before us.

11. The High Court, by the impugned judgment, though held that the objections under Section 47 were not maintainable, made a brief observation on merits. It held that on merits that the acts of the Officers bind the Corporation as MMTC being a separate legal entity can only function through its Officers. Only a preliminary enquiry had been registered (when the proceedings were pending in the High Court) and, as such, there is no finding of fraud, cheating and collusion against the Officers of MMTC with the Officers of the decree-holder.

12. We have heard Mr. N. Venkataraman, learned Additional Solicitor General and Mr. Sanat Kumar, learned Senior Advocate, ably assisted by Mr. Akhil Sachar, Ms. Astha Tyagi, Ms. Sunanda Tulsyan and Ms. Karishma Sharma, learned counsels for the appellant. We have also heard Mr. Neeraj Kishan Kaul and Mr. Jayant Mehta, learned Senior Advocates, ably assisted by Mr. Sumeet Kachwaha, Mr. Samar Singh Kachwaha, Ms. Ankit Khushu, Ms. Garima Bajaj, Ms. Akanksha Mohan, Mr. Pratyush Khanna and Ms. Ira Mahajan, learned counsels for the respondent.

13. We have carefully considered the submissions and perused the records of the case. Elaborate arguments were heard on 22.05.2025, 23.05.2025, 24.07.2025, 29.08.2025, 18.09.2025 and 25.09.2025, both on maintainability and merits of the Section 47-objections.

14. Before we proceed to consider the contentions, we need to notice one additional fact which transpired during the pendency of the proceedings. It appears that, on 20.07.2025, MMTC had filed a follow-up complaint with the CBI and the CBI, on 21.07.2025, registered an FIR. We will deal with the same during the course of the judgment.

QUESTION FOR CONSIDERATION: –

15. In the above background, the question that arises for consideration is – Whether the High Court was justified in not entertaining the objections filed by the appellant under Section 47 of CPC and in dismissing the same?

MAINTAINABILITY: –

16. Mr. N. Venkataraman, learned ASG, assailed the impugned judgment by first contending that the finding on maintainability is completely untenable in view of the judgment of this Court in Civil Appeal No. 2896 of 2024 [Electrosteel Steel Limited (Now M/s ESL Steel Limited) vs. ISPAT Carrier Private Limited[1] ] decided on 21.04.2025. According to the learned ASG, this Court has held that the plea of nullity qua an Arbitral Award can be raised in a proceeding under Section 47 of CPC though the scope was very narrow.

 

[1] 2025 INSC 525

 

17. Before the High Court, considerable arguments were advanced on the question of maintainability of Section 47 objections under the CPC, once the award had been challenged and the Section 34 objection had been dismissed and sustained right up to the highest Court. The High Court held that if the objections under Section 47 are allowed to be entertained during the enforcement proceedings of an Award, it would effectively open a second round for challenging the Award. According to the High Court, this was not intended by the legislature and would defeat the purpose of the A&C Act, apart from delaying the finality of disputes.

18. Mr. N. Venkataraman, learned ASG, drew our attention to the judgment of this Court in Electrosteel (supra). In Electroteel (supra), certain arbitration proceedings between parties therein were commenced on 07.06.2017. On 27.06.2017, proceedings commenced under Section 7 of the Insolvency and Bankruptcy Code, 2016(IBC) against the appellant therein. The arbitration proceedings were kept in abeyance, due to the moratorium. The respondent therein filed a claim before the resolution professional who partly admitted the claim. A resolution plan submitted by the successful resolution applicant therein was approved by the Adjudicating Authority on 17.04.2018 under Section 31 of the IBC. In the plan, nil value was provided for the operational creditors. The approval of the plan attained finality right up to this Court and the challenge made by some other operational creditors were not fruitful.

19. The arbitrator, whose proceedings were kept in abeyance, resumed proceedings after the lifting of the moratorium and passed an Award on 06.07.2018 with the appellant therein Electrosteel not even contesting the proceedings. An award for a sum of Rs. 1,59,09,214/- along with interest was made in terms of Section 16 of the Micro, Small and Medium Enterprises Development Act, 2006 (for short MSME Act). No challenge was made under Section 34. Execution came to be levied by the respondent therein, when appellant Electrosteel filed a petition under Section 47 CPC, contending that the Award was a nullity and is not executable.

The Executing Court dismissed the petition resulting in a challenge under Article 227 before the High Court. The High Court dismissed the Article 227-petition primarily holding that since arbitral proceedings were initiated prior to the insolvency resolution process, the arbitrator was not barred from proceeding.

20. Before this Court, apart from arguments on Section 31 of the IBC which provided for binding nature of the plan on all the stakeholders, Electrosteel also argued that it was not barred from challenging the award at the execution stage. The contention was that since the award was a nullity, even if the appellant had not filed a petition under Section 34 of the A&C Act, it would not foreclose them from challenging the award in the execution proceedings. It was argued therein that the Facilitation Council in the said case inherently lacked jurisdiction to arbitrate the claim of the respondent, post the approval of the resolution plan. The respondent therein contended that since the appellant-Electrosteel did not challenge the award it was not open to them to raise a challenge to the award in the Section 47 proceeding.

21. In answering the issue about the maintainability of the objection under Section 47, this Court held that the High Court was correct insofar as it stated that plea of nullity qua an Arbitral award can be raised in a proceeding under Section 47 of CPC, but such a challenge would lie within a very narrow compass. This Court further held that in terms of Section 36 of the A&C Act, an Award can be enforced in accordance with the provisions of the CPC, in the same manner as if it were a decree of the Civil Court. This Court further held as under.

 

“48…….Execution of decrees and orders is provided for in Order XXI CPC. The law is well settled that at the stage of execution, an objection as to executability of the decree can be raised but such objection is limited to the ground of jurisdictional infirmity or voidness. The law laid down by this Court in Vasudev Dhanjibhai Modi Vs. Rajabhai Abdul Rehman, (1970) 1 SCC 670, is that only a decree which is a nullity can be the subject matter of objection under Section 47 CPC and not one which is erroneous either in law or on facts. The aforesaid proposition of law continues to hold the field.”

 

22. In conclusion, this Court on the said issue, held that objection to execution of an award under Section 47 was not dependent or contingent upon filing a petition under Section 34. Ultimately insofar as Electrosteel (supra) was concerned, the appeal of Electrosteel was allowed in view of the provisions of the IBC, particularly, Section 30 and 31. It was found that the Facilitation Council did not have jurisdiction to arbitrate the claim after approval of the plan.

23. Electrosteel (supra) held that any challenge under Section 47 would lie within a narrow compass. It has also been held that at the stage of execution, an objection as to executability of the decree can be raised, limited to the ground of jurisdictional infirmity or voidness. It has been further held that errors of facts and law cannot be the subject matter of objection under Section 47.

24. In Vasudev Dhanjibhai Modi vs. Rajabhai Abdul Rehman[2], it was held that an Executing Court cannot go behind the decree. It was also held that where a decree is a nullity like, for example, in cases where it is passed without bringing the legal representatives on record or made by a Court which inherently lacked jurisdiction, objections can be raised at the execution stage.

 

[2] (1970) 1 SCC 670

 

25. It should be pointed out that, in the present case, the objection is not based on the ground of any inherent lack of jurisdiction. What is really argued is that the Officials of MMTC committed fraud on MMTC, their employer and there was collusion and conspiracy between the Officials of MMTC and Anglo in pegging the price at US$ 300 PMT for the 5th delivery period. So, the argument on inexecutability of the decree was based on fraud committed by the Officials of MMTC on MMTC, by collusion and conspiracy resulting in a favourable Award for Anglo. It is also argued that fraud was discovered only after the Award was upheld by this Court.

26. Mr. Neeraj Kishan Kaul, learned senior counsel for Anglo, argued that objections under Section 47 were barred by law; that the A&C Act is a complete Code and Section 5 bars any form of judicial intervention other than what is expressly provided in the Act. According to the learned senior counsel, the A&C Act contains a comprehensive mechanism not just for the conduct of arbitral proceedings but also for challenge to an execution of an arbitral award. Learned senior counsel contended that awards cannot be challenged by a sidewind in Section 47-proceedings. Mr. Kaul contended that the fraud alleged in the present case is a fraud on itself by the employees (on the MMTC) and is not a fraud on the Arbitral Tribunal. According to the learned senior counsel, fraud alleged is a fraud on the formation and validity of the underlying contract. Learned Senior Counsel also submits that these objections were never taken at any point in the earlier stage of litigation.

27. In response, Mr. N. Venkataraman, learned ASG drew our attention to a judgment of the English Court and to the following passage in Lazarus Estates Ltd. v. Beasley[3] , as cited in Ram Preeti Yadav v. U.P. Board of High School and Intermediate Education and Ors.[4]:-

 

“I cannot accede to this argument for a moment. No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court, no order of a minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved it vitiates judgments, contracts and all transactions whatsoever;”

 

[3] (1956) 1 All ER 341

[4] (2003) 8 SCC 311

 

28. Learned ASG also relied on the principle that fraud avoids all judicial acts, ecclesiastical or temporal and relied on the judgment in S.P. Chengalvaraya Naidu v. Jagannath and Ors.[5], as cited in Ram Preeti Yadav (supra). Learned ASG further relied on Indian Bank v. Satyam Fibres (India) Pvt. Ltd.[6], United India Insurance Co. Ltd. v. Rajendra Singh and Others[7], and judgment of the Delhi High Court in National Projects Construction Corporation v. Royal Construction Company Private Ltd.[8], to contend that fraud avoids all judicial acts and that fraud affects the solemnity, regularity and orderliness of the proceedings. By relying on Rajendra Singh (supra), it was contended that no Court or Tribunal can be regarded as powerless to recall its own order if it is convinced that the order was wangled due to fraud or misrepresentation of such a dimension as would affect the very basis of the claim.

 

[5] (1994) 1 SCC 1

[6] (1996) 5 SCC 550

[7] (2000) 3 SCC 581

[8] 2017 SCC Online Del 10944

 

29. In Rajendra Singh (supra), while allowing the appeal of the Insurance Company to recall two awards of the Motor Accident claims Tribunal and permitting them to resist the claim on the ground of fraud, this Court opened the judgment with the following strong words:-

 

“2. If what the appellant Insurance Company now says is true, then a rank fraud had been played by two claimants who wangled two separate awards from a Motor Accident Claims Tribunal for a bulk sum. But neither the Tribunal nor the High Court of Allahabad, before which the Insurance Company approached for annulling the awards, opened the door but expressed helplessness even to look into the matter and hence the Insurance Company has filed these appeals by special leave.

3. “Fraud and justice never dwell together” (fraus et jus nunquam cohabitant) is a pristine maxim which has never lost its temper over all these centuries. Lord Denning observed in a language without equivocation that “no judgment of a court, no order of a Minister can be allowed to stand if it has been obtained by fraud, for, fraud unravels everything” (Lazarus Estates Ltd. v. Beasley : (1956) 1 All ER 341).

4. For a High Court in India to say that it has no power even to consider the contention that the awards secured are the by-products of stark fraud played on a tribunal, the plenary power conferred on the High Court by the Constitution may become a mirage and people’s faith in the efficacy of the High Courts would corrode. We would have appreciated if the Tribunal or at least the High Court had considered the plea and found them unsustainable on merits, if they are meritless. But when the courts pre-empted the Insurance Company by slamming the doors against them, this Court has to step in and salvage the situation.”

 

30. Faced with this situation, Mr. Kaul submitted that even if the case is examined on merits, the MMTC has not made out any case, nor even a prima facie case, by establishing any fraud or collusion warranting a decision that the Award is inexecutable.

31. In the light of the judicial pronouncements discussed hereinabove, we are not inclined to dismiss the objections only on maintainability. Elaborate arguments spanning over several days have been heard on merits and we set out to examine the objection of the appellants on merits to see if any prima facie case of fraud is made out for the appellant to contend that the Award is inexecutable.

NATURE OF ALLEGATION OF FRAUD – BREACH OF FIDUCIARY DUTY: –

32. The fraud that is alleged in this case originates in the grievance of MMTC that its employees in senior managerial roles including directors on the Board committed a breach of fiduciary duty. According to MMTC, there was collusion and criminal conspiracy by them with the Officials of Anglo in fixing the contracted price for the 5th delivery period at US$ 300 PMT. MMTC contends that the market price was only US$ 96.40 PMT for the 4th delivery period. The further contention is that the contracted quantity was far in excess of what was in need for NINL for whom the coal was being sourced. They also seek to explain the delay in unearthing the fraud for the reasons adduced by them which have been discussed in the earlier part of the judgment.

33. It is important to recollect here that we are at a stage where the award has attained finality in view of the dismissal of the appeal by this Court in proceedings arising under Section 34 of the A&C Act. The initiation of the dispute was on 04.03.2010 and the judgment of this Court was delivered on 17.12.2020.

LEGAL FRAMEWORK TO DETERMINE BREACH OF FIDUCIARY DUTY: –

34. Before we discuss the nitty-gritty of the merits insofar as they are essential for adjudication of Section 47-objection to examine whether at all even a prima facie case is made out, it is important to set out the legal parameters as laid down in judicial precedents in cases involving breach of fiduciary duty. The broad framework as to what would constitute the breach of fiduciary duty and what are the legal parameters for deciding the same have arisen before courts across the globe in various fact situations. To understand the principles that would govern is even more important in a case like ours where parties have litigated for over a period of 15 years and the allegation of breach of fiduciary duty has cropped up after the Award has had the imprimatur of this Court.

35. As was rightly forewarned in Re Living Images Ltd.[9], the first precaution to be taken is not to fall into the trap of being too wise after the event. In Re Living Images (supra), highlighting the need to discount the benefit of hindsight, the Court observed as under:-

 

“I should add that the court must also be alert to the dangers of hindsight. By the time an application comes before the court, the conduct of the directors has to be judged on the basis of statements given to the Official Receiver, no doubt frequently under stress, and a comparatively small collection of documents selected to support the Official Receivers and the respondents respective positions. On the basis of this the court has to pass judgment on the way in which the directors conducted the affairs of the company over a period of days, weeks or, as in this case, months. Those statements and documents are analysed in the clinical atmosphere of the courtroom. They are analysed, for example, with the benefit of knowing that the company went into liquidation. It is very easy therefore to look at the signals available to the directors at the time and to assume that they, or any other competent director, would have realised that the end was coming. The court must be careful not to fall into the trap of being too wise after the event.” (Emphasis supplied)

 

[9] (1996) 1 BCLC 348

 

36. It is always useful while adjudicating on alleged breach of fiduciary cases to remember the memorable words of Lord Davey in Dovey and The Metropolitan Bank (of England and Wales) Limited v. John Cory[10]:-

 

“I think the respondent was bound to give his attention to and exercise his judgment as a man of business on the matters which were brought before the board at the meetings which he attended, and it is not proved that he did not do so” (Emphasis supplied)

 

[10] 1901 Appeal Cases 477

 

37. MMTC now launches a no holds barred attack on most of the directors and senior managerial personnel who were in office from 2008-2009 right up to those who held office till 2020. The case projected is that the senior managerial personnel including the directors operated as a cabal to defraud MMTC and that it was only after this Court upheld the Award that an enquiry was launched and the fraud unearthed.

TEST OF A REASONABLY COMPETENT DIRECTOR: –

38. Before we examine the merits, we should also bear in mind the principle that in cases like this, a court cannot be swayed by what the Court thinks would have been a reasonable course of action for the director to adopt but the duty is to enquire whether on the available evidence before the Court to consider whether the course adopted by the director was one reasonably competent directors could have adopted. In Sharp and Ors. v. Blank and Ors,[11] a judgment by Norris J in Chancery Division in the context of negligence the Court observed as under:

 

“631. … in testing whether a director has been negligent the question is not simply what the Court thinks it would be reasonable for the director to have done; rather it is what the evidence before the Court establishes were the courses open to reasonably competent directors (the burden lying on a complainant to establish that the course of which complaint is made is not amongst them).

627. . When embarking upon a transaction a director does not guarantee or warrant the success of the venture. Risk is an inherent part of any venture (whether it is called entrepreneurial or not). A director is called upon (in the light of the material and the time available) to assess and make a judgment upon that risk in determining the future course of the company. Where a director honestly holds the belief that a particular course is in the best interests of the company then a complainant must show that the directors belief is one which no reasonable director in the same circumstances could have entertained.”

 

[11] (2019) EWHC 3096 (Ch)

 

RANGE OF REASONABLENESS – TEST

39. Dealing with the aspect of how the Court cannot second guess the directors by substituting its opinion and laying down that the enquiry should be whether the decision taken was within the range of reasonableness, it was held by the Court of appeal for Ontario in Maple Leaf Foods Inc. v. Schneider Corp. [12], thus:

 

“The mandate of the directors is to manage the company according to their best judgment; that judgment must be an informed judgment; it must have a reasonable basis. If there are no reasonable grounds to support an assertion by the directors that they have acted in the best interests of the company, a court will be justified in finding that the directors acted for an improper purpose.

The law as it has evolved in Ontario and Delaware has the common requirements that the court must be satisfied that the directors have acted reasonably and fairly. The court looks to see that the directors made a reasonable decision not a perfect decision. Provided the decision taken is within a range of reasonableness, the court ought not to substitute its opinion for that of the board even though subsequent events may have cast doubt on the board’s determination.

As long as the directors have selected one of several reasonable alternatives, deference is accorded to the board’s decision…

This formulation of deference to the decision of the Board is known as the “business judgment rule”. The fact that alternative transactions were rejected by the directors is irrelevant unless it can be shown that a particular alternative was definitely available and clearly more beneficial to the company than the chosen transaction” (Emphasis supplied)

 

[12] 42 OR (3d) 177

 

BUSINESS JUDGMENT RULE: –

40. The above decision also highlights the principle that as long as the decision taken falls within the range of options reasonably available, Court would defer to the decision of the Board under the “Business Judgment Rule”. The said principle was also reiterated by the Supreme Court of Canada in Kerr v. Danier Leather Inc.,[13] in the following words:

 

“On the broader legal proposition, however, I agree with the appellants that while forecasting is a matter of business judgment, disclosure is a matter of legal obligation. The Business Judgment Rule is a concept well-developed in the context of business decisions but should not be used to qualify or undermine the duty of disclosure. The Business Judgment Rule was well stated by Weiler J.A. in Maple Leaf Foods Inc. v. Schneider Corp. (1998), 42 O.R. (3d) 177 (C.A.): The court looks to see that the directors made a reasonable decision not a perfect decision. Provided the decision taken is within a range of reasonableness, the court ought not to substitute its opinion for that of the board even though subsequent events may have cast doubt on the board’s determination. As long as the directors have selected one of several reasonable alternatives, deference is accorded to the board’s decision …”

 

[13] (2007) 3 SCR 331 Canadian Supreme Court Reports

 

APPLICATION OF THE LEGAL PRINCIPLES TO THE FACTS AT HAND

41. With the above legal principles in mind, it is time to apply the same to the facts of the case and consider the contentions raised by the respective parties. The dispute revolves around the 5th delivery period, i.e., from 01.07.2008 to 30.06.2009, as well as on the status and execution of Addendum No.2 dated 20.11.2008, to the LTA of 07.03.2007. A brief narration of the facts essential for appreciating this aspect of the controversy has also been discussed, while dealing with the rival contentions.

LONG TERM AGREEMENT (LTA) OF 07.03.2007

42. Indisputably, on 07.03.2007, an agreement for sale and purchase of coking coal was executed between the MMTC and Anglo. This is the Long Term Agreement (LTA). Under the LTA, Clauses 1 and 2 are crucial for the determination of the case and they are set out hereunder:

 

“CLAUSE 1: MATERIAL, QUANTITY, QUALITY AND DELIVERY PERIOD:

1.1 The SELLER shall sell and the PURCHASER shall buy,

 

a) The base quantity during the currency of the contract shall be 466,000 (Four hundred Sixty six thousand) metric tons (of one thousand kilograms each) firm.

b) During the First Delivery Period (1st July, 2004 to 30th June, 2005), a quantity of 464,374 (Four Hundred Sixty Four Thousand, Three Hundred and Seventy Four) metric tons (of one thousand kilograms each) firm quantity of freshly mined and washed “Isaac”, “Moranbah North” and “German Creek” coking coals.

c) During the Second Delivery Period (1st July, 2005 to 30th June, 2006) a quantity of 382,769 (Three Hundred Eighty Two Thousand, Seven Hundred and Sixty Nine) metric tons (of one thousand kilograms each) firm quantity of freshly mined and washed “Isaac”, “Moranbah North” and “German Creek” coking coals.

d) During the Third Delivery Period (1st July, 2006 to 30th June, 2007) a quantity of 466,000 (Four Hundred Sixty Six Thousand) metric tons (of one thousand kilograms each) firm quantity of freshly mined and washed “Isaac”, “Moranbah North” and “German Creek” coking coals.

e) During the subsequent Delivery Periods, in case of the PURCHASER exercising the option to extend the duration of the Agreement by two more years, at its sole discretion, as indicated at Para 1.3 herein below, a quantity of 466,000 (Four Hundred Sixty Six Thousand) metric tons (of one thousand kilograms each) of freshly mined and washed “Isaac”, “Moranbah North” and “German Creek” coking coals hereinafter referred to as the MATERIALS, in conformity with the Technical Specifications incorporated in Annexure- IIA (applicable for “Isaac” coking coal) and Annexure- IIB (applicable for “Moranbah North” coking coal) and Annexure IIC (applicable for “German Creek” coking coal) to this Agreement and which shall constitute an integral part of this Agreement, for use of imported coking coals in the coke ovens in its integrated iron and steel works for production of metallurgical coke. The quality of the prime washed coking coals to be supplied under this Agreement shall under no circumstances be inferior to the Technical Specifications as contained in Annexure IIA, Annexure IIB and Annexure IIC to this Agreement as applicable.

 

1.1.1 Annual base quantity from 15th July, 2007 to 30th June, 2009, in case Purchaser exercises its option to extend the Agreement by 2 years, shall be 466,000 metric tonnes, subject to further discussions at the time of contract extension and the logical contract specification modifications to reflect the changing nature of existing reserves at the Moranbah North and German Creek mining operations will be mutually agreed.

1.2 For the purpose of this Agreement, the Delivery Periods shall be reckoned as follows:

 

First Delivery Period: 1st July 2004 to 30th June 2005 Second Delivery Period: 1st July 2005 to 30th June 2006 Third Delivery Period: 1st July 2006 to 30th June 2007

The shipments will be evenly spread during each Delivery Period. The PURCHASER reserves the right to prepone shipments against any Delivery Period based on its requirement and subject to availability with the SELLER.

The PURCHASER reserves the right to postpone the deliveries to be effected under each Delivery Period by upto 3 months i.e. upto the month of September following each Delivery Period, without any additional financial liability to the PURCHASER.

 

1.3 The PURCHASER had the option to extend the duration of the Agreement by two more years, at its sole discretion and the Purchaser to exercise its option for extending the Agreement by two more years or otherwise by 31 January, 2007. In case the PURCHASER decides to exercise such option, at its sole discretion, the Agreement shall have two more Delivery Periods as follows:

 

Fourth Delivery Period: 1st July 2007 to 30thJune 2008 Fifth Delivery Period: 1st July 2008 to 30thJune 2009

 

CLAUSE 2: PRICE:

2.1 The firm price of the MATERIALS for the First Delivery Period 1st July 2004 to 30th June, 2005 shall be US$ 57.75 (United States Dollars, Fifty Seven and Cents Seventy Five only) per metric ton (of one thousand kilograms each) Free on Board (Trimmed). Port of Loading will be Dalrymple Bay Coal Terminal, Queensland, Australia.

The firm price of the MATERIALS for the Second Delivery Period 1st July 2005 to 30th June, 2006 shall be US$ 126.75 (United States Dollars One hundred twenty six and Cents Seventy Five only) per metric ton (of one thousand kilograms each) Free on Board (Trimmed). Port of Loading will be Dalrymple Bay Coal Terminal, Queensland, Australia.

2.2 The Price for the delivery of AGREEMENT quantity for subsequent Delivery Periods shall be fixed in accordance with Para 1 of Annexure I and shall be firm and shall not be subject to any escalation for any reason, whatsoever, until the completion of delivery of the AGREEMENT quantity due for delivery in the relevant Delivery Period with such extensions as might be mutually agreed upon between the PURCHASER and the SELLER.

2.3 The payment of the price of the MATERIALS delivered by the SELLER under this Agreement shall be made by the PURCHASER by means of an irrevocable, without recourse to drawer Letter of Credit providing for payment of the full invoice value of the MATERIALS at sight. The Letter of Credit will provide for full payment in US Dollars at Brisbane, Queensland, Australia. The payment shall be made on presentation of the documents mentioned in Para 6.2 of Annexure – 1.

2.3.1 Notwithstanding the method of payment as mentioned at 2.3 above, the SELLER may also provide Supplier’s credit for 180 days at the terms and conditions mutually agreed upon from time to time, against an irrevocable, without recourse to drawer letter of credit upon presentation of documents mentioned at Para 6.2 of Annexure-I.

The documents in original and by fax referred to hereinabove should be delivered at the following address.

General Manager (Coal & Coke)

MMTC Limited,

SCOPE Complex, Core-1,

7, Institutional Area, Lodi Road,

New Delhi-110003

India

All bank charges at the Seller’s end (outside India) shall be borne and paid for by the SELLER. All bank charges at the PURCHASER’S end (inside India) shall be borne and paid for by the PURCHASER.” (Emphasis supplied)

 

43. It will be noticed that under Clause 1.1 (a), the base quantity of 4,66,000 MT was fixed for the currency of the contract. For the first three delivery periods, the quantity was mentioned along with the period. Clause 1.1 (e) dealt with the option of the purchaser to extend the duration by two more years, after the third delivery period. It further provided that if option is exercised a quantity of 4,66,000 MT of coal was to be purchased.

44. Clause 1.3 vested the option in the purchaser to extend the contract. Clause 2.1 provided the firm price of the materials for subsequent delivery periods. As per Clause 2.2, the price was to be fixed in accordance with Para 1 of Annexure-I which dealt with General Conditions of Agreement. Under Para 1 of Annexure-I, the price for delivery of the materials during subsequent delivery periods was to be mutually discussed and settled by the purchaser and seller prior to the commencement of relevant delivery period at the same price as settled between the seller and SAIL/RINL, applicable to the relevant delivery period under the LTAs.

45. Clause 1.1 of the General Conditions of Agreement in Annexure-I is extracted hereunder:

 

“GENERAL CONDITIONS OF AGREEMENT (GCA)

PARA 1.0: PRICE FIXATION

1.1 The price for delivery of the MATERIALS during subsequent Delivery Periods shall be mutually discussed and settled by the PURCHASER and SELLER prior to commencement of the relevant Delivery Period at the same price as settled between the SELLER AND STEEL AUTHORITY OF INDIA (SAIL) / RASHTRIYA ISPAT NIGAM LTD (RINL), applicable to the relevant Delivery Period under their respective Long Term Agreements.” (Emphasis supplied)

 

It is undisputed that the third delivery period also passed off smoothly from 01.07.2006 to 30.06.2007.

EXECUTION OF THE MoU AND EXERCISE OF OPTION: –

46. One of the questions that arise is whether option was exercised on or before 31.01.2007 as required under Clause 1.3 of the LTA. While Mr. Venkataraman-learned ASG, contends that it was Addendum No.2 dated 20.11.2008 which was the real agreement, Mr. Kaul submits that, on 30.01.2007, a MoU was executed between MMTC and Anglo. Mr. Kaul contends that while the LTA was not formally signed, deliveries for the first and second delivery period were completed and by 30.01.2007 they were in the process of completing the third delivery period which was from 01.07.2006 to 30.06.2007. It was at this point that on 30.01.2007, a MoU has been executed with the following Clauses:

 

“1. MMTC to execute the long term contract agreed between the parties in correspondence and provide to Anglo for execution earliest.

2. The parties agree to foreclose a quantity of

 

a) 1615 MT undelivered against first delivery period July 2004- June 2005 of long term contract @ USD 57.75 PMT FOBT and

b) 83231 MT undelivered against second delivery period July 2005-June 2006 of long term contract @ USD 126.75 PMT FOBT

2. Supply of a quantity of 466,000 MT @ USD 114.00 PMT FOBT for third delivery period July 2006-June 2007. The delivery period is extended to September 30,2007.

3. Supply of a quantity 466,000 MT at price to be finalized by EJC for SAIL and RINL, for fourth delivery period July 2007- June 2008. The delivery period is extendable up to September 2008.

4. The contract is extended by a further two years in accordance with clause 1.3 of the long term agreement.

Fourth delivery period 1st July 2007 to 30th June 2008.

Fifth delivery period 1st July 2008 to 30th June 2009.

The price terms & Conditions of coal supply to MMTC for fourth and fifth delivery periods shall be as per Anglo-Agreement UNL/SAIL” (Emphasis supplied)

 

47. It will be noticed that this MoU was signed on 30.01.2007 and this is a fact not disputed by the learned ASG and, in fact, filed by the learned ASG as part of his additional documents. This date was one day before the deadline of 31.01.2007 which came to be signed on 07.03.2007.

DELIVERIES DID NOT AWAIT FORMAL EXECUTION OF AGREEMENTS: –

48. As is clear from the MoU, based on the agreement in the correspondence, deliveries were taking place and by the time the LTA was signed, it was mid-way during the third delivery period. As could be seen from the MoU, even the 4th delivery period was agreed upon and passed on without any dispute. The 5th delivery period was to begin on 01.07.2008, when the 4th delivery period stood extended till 30.09.2008.

PRICES PEGGED TO SAIL/RINL PRICE: –

49. The price for the periods concerned was pegged by what the Empowered Joint Committee would fix for the contract with SAIL and RINL. This was also reiterated on 30.01.2007, contends Mr. Kaul. When matters stood thus, the time for the 4th delivery period which was extended to 30.09.2008, however, continued till 30.10.2008. In the meantime, as is clear from the internal note of 03.06.2008 circulated by Shri Suresh Babu of MMTC, SAIL and RINL had fixed their price for the delivery period from 01.07.2008 to 30.06.2009. On 03.06.2008, the Lehman Brothers collapse had not happened. It commenced on 15.09.2008, and that is also not in dispute.

INTERNAL NOTE OF 03.06.2008

50. At this stage, it is relevant to extract the internal note of 03.06.2008 prepared by Shri Suresh Babu for MMTC, which reads as under:-

 

“COAL & HYDROCARBON DIVISION

Sub: Finalization of long term price of Coking Coal for Delivery Period of 01-07-2008 to 30-06-2009.

Anglo and BMA had already finalized the price of hard coking coal for the above delivery period with Japanese Steel Mills and SAIL and RINL. The price of prime hard coking coal for the above delivery period is fixed at usd 300/t and Torrington hard coking coal at usd 292.50/ t as against usd 96.4/91.5 per ton respectively in the previous year. It is understood that BMA had not allowed carrying forward the left over quantities for the delivery period 200708 in case of Japanese Steel Mills. So MMTC made all out effort to secure the cargo from both BMA and Anglo within the delivery period itself. MMTC will not be able to lift the entire contracted quantity of Anglo Coal for 07-08 by 30th June, 2008. Accordingly shipment schedule has been obtained from Anglo to complete shipment within the extension allowed i.e., upto Sept,’08. However, BMA has to give us the schedule for left over quantity for 2007-08. Here also every effort is being made to ensure that the entire quantity relating to 2007-08 delivery period will be secured within the extended delivery period upto 30th Sept., 2008.

The coal supplied within the extended period will be sufficient to take care of NINL requirement upto March’09. As per the shipment schedule given by Anglo, two vessels have to be nominated in Sept 08 to load coking coal from DBCT. These vessels will come up for loading from DBCT in Oct 08 and reach Paradip early November 08.

Both Anglo and BMA are offering Japanese price to Indian consumers. The demurrage rate offered by Japanese Steel Mills are said to be in the range of US $ 9000-15,000 per day. So Indian consumers also have been asked to accept similar demurrage rates. Despite all these, the spot price of hard coking coal has reached US $ 400/t FOB; availability is very-very tight. Since the 2007-08 contract cargo is to be delivered upto 30.9.09, there was a suggestion from Anglo that quantity for 1.7.08 to 30.6.09 will be proportionately reduced keeping in mind 9 months left for the supplies.

Considering the huge shortage for coking coal and the spot premium, it is felt that “we may continue to keep the delivery period from 1.7.08 to 30.06.09 and the contracted quantity will be 4,66,000 tons with provision for extension of delivery period by another three months, i.e., upto 30.9.09. in case the entire quantity cannot be delivered by 30 June 2009, delivery period will be extended upto 30.9.09.” We may also request Anglo to extend the long term agreement for another five years with the terms and conditions of Steel Authority of India Ltd.

For approval ‘A’ please Sd/-

(SURESH BABU) 03.06.08

DIR (HSM)

Upto March 09, we should try to avoid/ defer US$ 300 price coal to be finalised for 08-09 pl. ‘X’ app.

Sd/-

HS Mann 04/08.” (Emphasis added)

 

51. As will be noticed, there was a note of Shri H.S. Mann, Director, to the effect that MMTC should try to avoid/defer US$ 300 price coal to be finalised for 08-09. Learned ASG highlighted this aspect of the matter in great detail. The learned ASG contended that even Mr. Mann, later was a party consenting to the price of US$ 300 PMT and wanted to infer certain sinister conduct in the same.

EJC – APPROVAL OF SAIL/RINL PRICE AT US$ 300 PMT:

52. On 14.08.2008, Anglo wrote to MMTC about their agreement with the Empowered Joint Committee (EJC) on 08th and 9th May, 2008 for supply of hard coking coal to SAIL and RINL during the delivery period from 01.07.2008 to 30.06.2009. They confirmed by the same mail the supply arrangement for the 5th delivery period with MMTC for 4,66,000 MT. Indisputably, the price fixed with SAIL and RINL was US$ 300 PMT.

53. On 25.09.2008, a letter was written by Shri Suresh Babu of MMTC to Shri SP Padhi, Executive Director of NINL, suggesting that since SAIL has already signed the agreement for 2008-2009 and the price is also fixed, MMTC may also sign the agreement. In the letter, it was suggested that a new brand of hard coking coal “Dawson Valley Blend” has been introduced. The letter suggested that “Dawson” coal be preferred because “Dawson” coal will be loaded from Gladstone where the pre-berthing delay is only around a week as against 25 to 30 days in port (DBC) where Isaac coking coal was loaded. Suggestion was that demurrage can be saved by MMTC.

AGENDA NOTE OF 29.09.2008

54. In the agenda note dated 29.09.2008 put up by Shri Suresh Babu to the Sale/Purchase Committee of Directors [SPCoD] of MMTC, it was stated as under:-

 

“5. Status Of 2007-08 Contract:

 

a) Contracted Quantity: 466,000 Mt: As on today a quantity of 417,345 MTs of Hard Coking Coal has already been loaded by Anglo and a vessel is already nominated in lay can 20-30 October 2008, for loading about 50,000 Mt.

 

6. New 5 Year Long Term Agreement by SAIL: RINL/SAIL’s LT agreement was valid till 30.6.08. They have entered into a new five year long term agreement with Anglo Coal for the period of 15th July 2008 to 30th June 2013. Our LT agreement is valid upto 30.6.09. We may, if approved, explore the possibility and enter into a five year long term agreement with effect from 01.07.2008 to 30.06.2013 as in the case of RINL/SAIL.

B: RECOMMENDATION OF THE DIVISION: –

7. SPC may please deliberate and accord approval for:-

 

i) Inclusion of new coking coal brand “Dawson Valley Blend”.

ii) Price of US$ 300.00 PMT FOB each for the purchase of Isaac and Dawson Valley Blend Brand of Coking Coal totaling 466,000 MT from Anglo for the period of 1st July 2008 to 30th June 2009.

iii) Subject to acceptance by Anglo Coal for entering into five years long term agreement with them w.e.f. 1.07.2008, incorporating the terms and conditions of Anglo’s Agreement/ amendment to Agreement with SAIL from time to time with logical changes wherever applicable.

 

8. The total value of the proposed purchase for 2008-09 is about Rs.615 crores (exchange rate US$/Rs. = 1/44).

9. Authorising Dir (HSM) and Dir (Fin) to sort out deadlock issues/make logical changes wherever required.

10. Associate Finance has concurred the proposal.

11. Director-HSM has seen and approved for circulation to SPCOD.

C: DECLARATION

The Division has truly and fairly brought out all material information available with the division which is likely to influence the decision SPC, in the agenda and no material information has been withheld.”

SPCoD APPROVAL OF 06.10.2008

 

55. The SPCoD met on 06.10.2008. The SPCoD (including Mr. H.S. Mann) granted approval in the following terms:-

 

“Item No. 1: Agreement with Anglo coal Australia Pty. Ltd., for import of Coking Coal for NINL-as per note of GM (SB) dated 29.9.2008

The Committee after being informed that the proposed terms and conditions including deviations are same, as in the case of RINL/SAIL approved the proposal subject to acceptance of the same by NINL. Possibility of reduction of quantity for 2008-09 be explored without affecting long-term prospects from the supplier in view of recent fall in prices of Pig Iron and Steel products

Item No. 2: Import of Coking Coal of NINL-Qty. & Price Fixation as per note of GM (SB) dated 29.9.2008

The Committee after being informed that the proposed terms and conditions including deviations are same, as in the case of RINL/SAIL, approved the proposal subject to acceptance of the same by NINL. Possibility of reduction of quantity for 2008-09 be explored without affecting long-term prospects from the supplier in view of recent fall in prices of Pig Iron and Steel products.” (Emphasis supplied)

 

The Minutes of 06.10.2008 mentioned that in view of the recent fall in prices of pig iron and steel products possibility of reduction of quantity should be explored.

56. Dealing with reference to “approval by NINL” in the Minutes, Mr. Kaul sought to explain the same by stating that the LTA was not dependent on the approval of NINL and what was meant by the Minutes was the approval of the proposed change in the technical specifications of coal.

5TH delivery period commenced with the last SHIPMENT UNDER THE FOURTH DELIVERY PERIOD: –

57. During this period, the 4th delivery period was nearing completion in view of the extension up to 30.09.2008 which prolonged up to 30.10.2008. In fact, it was not disputed that with the last shipment of the 4th delivery period of 48,655 MT at US$ 96.40 PMT, 2,366 MT was loaded on the vessel as part of the 5th delivery period at US$ 300 PMT. This was even before the Addendum No.2 of 20.11.2008 and on a query by the Court, the learned ASG replied that this was a miniscule quantity intended to save dead freight. What is, however, significant is even before agreements were entered into, based on the agreement on correspondence, deliveries were being executed and that is clear from the events that transpired from 2004 onwards. No grievance has been raised for any of the shipments till 20.11.2008.

REPLY OF NINL TO MMTC LETTERS OF 25.09.2008: –

58. In reply, NINL wrote two letters, first a letter was written on 14.10.2008 giving a go-ahead. Thereafter, a letter dated 16.10.2008 was written in reply to MMTCs letter dated 25.09.2008. This letter of 16.10.2008 is strongly relied upon by learned ASG to contend that NINL needed only 2.2 Lakh tons of Anglo coal. The letters dated 14.10.2008 and 16.10.2008 read as under:-

 

“Ref.No.NINL/GM(Comml)/2008/1085

Date: 14.10.2008

Mr. Suresh Babu, GM (Coal & Coke) MMTC Ltd., New Delhi

Dear Sir,

Please refer to your mail dated 25th September, 2008 for procurement of coking coal of 12.66 lakh tons.

MMTC may please place order for Anglo Coal consisting of 80% Dawson and 20% Capricon, since the same is approved by SAIL. Other terms and conditions may be negotiated and finalized.

Thanking you,

Yours faithfully

For Neelanchal Ispat Nigam Ltd

Sd/-

[P.K. Pandey]

DGM (Commercial)

*** *** ***

Ref. No. NINL/CM/24/1103 Dt. 16th October, 2008

Mr. Suresh Babu,

General Manager (Coal & Coke)

MMTC Limited

Core-1, Scope Complex

7 Institutional Area, Lodhi Road

New Delhi-110003

Dear Sir,

Please refer to your mail dated 25th September, 2008 for procurement of Coking Coal of 12.66 Lakh Tons.

It may be noted that our annual requirement is 11.80 lakh tons. Our present stock of coal is around 3.70 Lakh tons. Hence, we need to procure coal around 9.00 Lakh tons in a year from now. However, procurement quantity may be decided based on the coal supply in pipe line and our present stock. Considering, blending of the hard coal and soft coal is in 80:20 ratio, coal may be procured as under:

Hard Coking Coal:

a) BMA : 5 Lakh tons approx.

b) ANGLO : 2.2 Lakh tons approx.

Out of 2.2 Lakh tons of ANGLO Coal, 20% may be procured from Dawson Valley Blend consisting of 80% Dawson and 20% Capricorn, since the same is approved by SAIL, at the option of MMTC/NINL (to be exercised in a manner for minimizing the demurrage)

Soft Coking Coal

Black Water: 1.80 Lakh Tons Approx.

Price, terms and conditions may be negotiated and finalized.

Thanking you,

Yours faithfully,

Sd/-

16/10

(P.K. Pandey)

Dy. General Manager (Commercial)

Encl: Approved copy of Competent Authority for your reference and record.”

 

59. Mr. Kaul contends that the terms of LTA had already fixed the quantity and NINLs correspondence one way or the other can have no bearing on the committed quantity which MMTC agreed to procure from Anglo.

ADDENDUM NO.2 DATED 20.11.2008 – THE BONE OF CONTENTION: –

60. It is in this background that the 20.11.2008-Addendum No.2 to the LTA was formally signed. Learned ASG contended that it was by the agreement of 20.11.2008 that price and other terms of delivery were fixed and relied on the evidence of Mr. John Wilcox who was examined in the Arbitration as Anglos witness. According to learned ASG, the officials of MMTC by entering into Addendum No.2 tied up MMTC in knots and no ends were kept loose to ensure that MMTC was committed to huge financial amounts due to the fraudulent fixation of the price.

61. Learned ASG referred to the news release of Anglo dated 20.02.2009 to demonstrate that it was within the knowledge of Anglo that the price of coking coal has drastically fallen in the second half of 2008.

62. In response, Mr. Kaul contended that Addendum No.2 signed on 20.11.2008 was only the last in the series of documents to finetune the shipping terms, moisture content and the specific variety of coal for the 5th delivery period all material terms including the shipping period (from 01.07.2008 to 30.09.2009) quantity (4,66,000 MT) and price were already fixed in terms of the LTA. The price was to follow the SAIL/RINL price which has been duly fixed at US$ 300 PMT for the said period.

63. The Addendum of 20.11.2008 is in the form of a letter addressed by MMTC to Anglo. It is to the attention of Mr. John B. Wilcox. It states that MMTC was pleased to confirm the settlement with Anglo and, thereafter, the column below deals with (i) delivery period – 01.07.2008 to 30.06.2009, (ii) quantity – 4,66,000 MT. Thereafter, it deals with coal brands and price (US$ 300 PMT), other terms like total moisture, loading terms, vessel sizes, loading rates, demurrage rates for different ports, the variation permissible limits and force majeure clause. At the end it has the following clause:

 

“All other terms and conditions of agreement no. MMTC/C&HC/LT/HCC/NINL/ANGLO/585 DATED 7^TH MARCH 2007 shall remain unchanged”.

 

64. It should be recalled that shipments have happened based on correspondence, as stated earlier from 2004 and agreements have been entered into post the shipments even for the 5th delivery period. Admittedly, 2,366 MT were shipped on 30.10.2008 along with the last shipment of the 4^th delivery period.

SAME DAY (20.11.2008) LETTER SEEKING PRICE REDUCTION: –

65. On the same day after entering into Addendum No.2, the following letter was written by Mr. Ved Prakash, the Chief General Manager of MMTC to Anglo:-

 

“File No. MMTC/C&HC/08-09/CC/Anglo/798

20th November 2008

Anglo Coal Australia Pty. Ltd.

201, Charlotte Street

Brisbane 4000

Queensland, Australia

Fax No. 0061-7-3834-1390

KIND ATTN: MR. JOHN B WILCOX, MARKETING MANAGER

Sub: Addendum to Long Term supply of coking coal contract for the

Delivery Period 2008-09

Dear Sirs,

As discussed, we hereby confirm the acceptance of coking coal supply during the period 2008-09 vide Addendum No.2 LT Agreement

MMTC/C&HC/LT/HCC/NINL/ANGLO/585 DATED 7th March 2007

As you are aware, due to worldwide crisis as financial markets, there has been unprecedented fall in prices of major commodities including steel Such a steep tall is a rare phenomenon and all over there is a feeling that it is a beginning of economic recession in the world. It is feared that it may continue for long time to come

The prices of iron and steel products in the international market has nose-dived in the month of September and October 2008 and pig iron, a finished product manufactured by us and being exported is not getting customer on date even at US $100 FOB. Same is the situation in the domestic market and we are not able to sell our product. Under the circumstances, you will appreciate it has become absolutely unviable to produce and sell pig iron based on the imported coking coal having price of US$ 300 per tonne FOB for hard coking coal. More than three-fold increase in the price of coking coal during a period when the prices of finished steel including pig iron had virtually crashed, will make difficult for us to run the plant on sustainable basis. The substantial depreciation of Indian rupees to USD has further added to our woes and under the circumstances, we have already out the production to a bare minimum so as to just keep running our coke oven batteries as well as blast furnace. In view of unprecedented recessionary trends in the economy and consequent abnormal low realization on pig iron, we request price reduction of coal for quantities finalized for delivery during 1st July 2008 to 30th June 2009 period to level that was settled for delivery period 1st July 2007 to 30th June 2008. This only will help us to keep the plant running and to produce on consistent basis.

We look forward for your positive response.

Yours faithfully

Sd/-

MMTC Ltd.

Ved Prakash

Chief General Manager”

(Emphasis supplied)

 

66. The letter was written by Shri Ved Prakash who was then the Chief General Manager and the substance of the letter was that since pig iron prices have crashed, to purchase coal at US$ 300 PMT to produce pig iron could be an unviable option. Hence, a request was made for price reduction of coal for the period from 01.07.2008 to 30.06.2009 to the level which obtained for the delivery period from 01.07.2007 to 30.06.2008.

67. Elaborate arguments were advanced by the learned ASG about the significance of letter being written on the same day after signing the Addendum No.2. The learned ASG also invited our attention to the observations of majority members of the Board of Arbitration about the Addendum being executed and the letter being written on the same day respectively.

SUBSEQUENT CORRESPONDENCE “CARRY OVER”: – CONCEPT OF

68. Learned ASG referred to a series of correspondence that ensued between MMTC and Anglo pursuant to MMTC lifting only 11,966 MT out of the contracted 4,66,000 MT. Learned ASG contended that the correspondence only reflected a friendly fight between erring officials, after having committed to the price of US$ 300 PMT while the prevailing market price was US$ 128 PMT. Learned ASG submitted that on the one hand Anglo was justifying the fixation of prices at US$ 300 PMT on the premise that agreements entered into between SAIL and RINL were of the said price, while on the other hand Anglo chose to ignore the same analogy for the period post the execution of Addendum. According to learned ASG, the refusal on the part of Anglo for staggering at the price of US$ 128 PMT in the same manner as was provided to SAIL was an act of arbitrariness on the part of Anglo. Learned ASG lamented that the erring officials of MMTC did not even attempt to persuade Anglo to provide the same treatment as was given to SAIL and RINL after the execution of the Addendum dated 20.11.2008.

69. Learned ASG referred to the letter dated 21.09.2009 of Anglo which referred to the earlier letter dated 09.03.2009 (which MMTC claims was not received by MMTC) and submitted that Anglo had made the following proposal:-

 

MMTC to perform a total of 38% of the total contracted tonnage for the Fifth Delivery Period on the terms and conditions (including price) applicable under the Agreement (a further 172,533 tonnes) by March 31, 2010. This will bring MMTC in line with the contract performance of SAIL and RINL for the 2008/09 Delivery Period.

In addition, MMTC is to perform 18.7% of the remaining Carryover (a further 52,641 tons) by March 31, 2010 on the terms and conditions of the Agreement (including price) as agreed with SAIL and RINL.

Anglo will enter into a new long term agreement with MMTC on the same terms and conditions as the current long term agreements with SAIL and RINL (including performance of the remaining carryover) for 466,000 tonnes per annum for a period of 3 years commencing 1st April, 2010.

Therefore, in summary, MMTC will take delivery of 225,174 tonnes of coal at 2008 price, terms and conditions between now and 31 March 2010 and, under the new 3 year contract, perform the remainder of the Carryover evenly spread over the first 2 years of the contract.

This proposal is made without prejudice to our rights under the Agreement. It will remain open and capable of acceptance until 5:00 pm (Brisbane time) on Wednesday 30th Sept 2009.

 

70. Learned ASG submitted that by letter of 25.09.2009, Shri Suresh Babu declined the proposal which the learned ASG stated would indicate that the reply strengthened the case of Anglo. Referring to the counter proposal in the letter of 25.09.2009, the learned ASG referred to the following paragraph in the said letter:-

 

“…Keeping these issues in mind, we had approached Anglo Coal for a reduction in price vide our letter dated 20.11.2008. Lifting another 38% implies a further increase in loss by another USD 80/t. For the sake of negotiation, we hope you will not ignore the economic realities completely. Steel Melting Shop of NINL is under implementation and the commissioning is expected sometime in end 2010. Economy will also come out of recession gradually.

In short we are not denying our obligation. The request is only for staggering the time frame for lifting as explained in para 1 and para 2. Please review and consider our request for allotting at least one shipment of 50,000 MT each from October 09 onwards instead of zero stem till end of 2009.” (Emphasis supplied)

 

71. Learned ASG also referred to the further proposal of Anglo vide their letter dated 25.11.2009, whereby Anglo proposed that MMTC lifts the remaining quantities of 4,54,034 MT of 2008 contract year in line with the agreement with SAIL and RINL at the 2008 price of US$ 300 as per the following schedule:-

 

“January – March, 2010 85,000 18.7%

April 2010 – March 2011 1,84,566 40.65%

April 2011 – March 2012 1,84,566 40.65%

We trust that this arrangement meets with your approval.

This proposal is made without prejudice to our rights under the Agreement. It will remain open and capable of acceptance until 5.00pm (Brisbane time) on Friday 4th December 2009.”

 

72. Learned ASG referred to the reply of Shri Suresh Babu, for MMTC dated 27.11.2009 in his letter addressed to Mr. Rod H. Elliott of Anglo stating that the said proposal was acceptable to MMTC subject to Anglo allocating the left-over quantities pertaining to 2009 contract at 2009 prices based on the terms and conditions agreed upon in the EJC of SAIL and RINL. The learned ASG referred to the following para in the said letter.

 

“…conditions agreed upon in the EJC of SAIL & RINL. To be specific the balance supplies amounting to 4,25,600 MT at the 2009 price level of US$ 128/125 PMT shall also be made in proportion along with the carryover quantities of 2008 as proposed above in line with the terms agreed upon with SAIL & RINL.”

 

73. Learned ASG referred to the reply of Anglo dated 01.12.2009 stating that it was not possible to make any additional tonnage commitment to MMTC over and above what was detailed in the proposal of 25.11.2009. The above correspondence was characterised by the learned ASG as a make believe and friendly fight and only a creation of a paper trail to give an impression that there was no collusion.

74. Mr. Kaul, on the other hand, submitted that the offers made by Anglo were good faith offers. Explaining the concept of “carry over” learned senior counsel, Mr. Kaul, pointed out that “carry over” arrangements do not dilute price or quantity and all that happens is some more time is given to the purchaser to lift the quantities at the contracted price.

75. Mr. Kaul strongly refuted the contention that Anglo allowed SAIL and RINL to lift their 2008-09 quantities at a reduced price. Mr. Kaul submitted that SAIL and RINL were in the first delivery period of their new LTA and as such could lift coal pertaining to their future delivery period alongside their 2008-09 carryover and could thus seek mixed price cargo with shipments containing some percentage of 2008-09 carryover and some percentage of the ongoing delivery period. Mr. Kaul submitted that MMTC was in the last delivery period and even then they were not treated differently than SAIL or RINL. 76. According to Mr. Kaul, on 15.07.2009, MMTC was offered an ad hoc “mixed price shipment” to tide over financial difficulties of MMTC. According to the learned senior counsel, what was offered in the letter, namely, 40,400 MT at US$ 128.25 PMT was on ad hoc basis with a condition that their carry over quantity of 5th delivery period will be supplied only at US$ 300 PMT.

77. Mr. Kaul, learned senior counsel for Anglo submitted that the letter of 21.09.2009 by Anglo offered the same “carry over terms” to MMTC as was offered to SAIL/RINL, as is clear from the letter itself. According to Mr. Kaul, the attempt of MMTC by its letter of 21.05.2009 was to perform the carry-over obligation at the adhoc mixed price, which was offered vide letter of 15.07.2009 as a onetime measure and as a goodwill gesture.

78. Mr. Kaul submitted that by letter of 21.09.2009, Anglo even agreed that MMTC could spread out its contractual performance over the next 3 years. The letter of MMTC of 27.11.2009, according to Mr. Kaul, purported to accept this offer provided, in parallel, Anglo also supplied additional (Adhoc) (coal) @ US$ 128/125 PMT. This could not be accommodated by Anglo resulting in the invocation of arbitration ultimately.

79. According to Mr. Kaul, MMTC kept asking for reduction of price and when Anglo refused to supply at the reduced price a defence was taken in the arbitration and in the Court proceedings that Anglo was incapable of supplying.

According to Mr. Kaul, this submission was rejected both by the majority of the arbitral Tribunal and by the learned SingleJudge in Section 34 which was restored by this Court and a finding was recorded that the stand of MMTC that Anglo was incapable of supplying was found to be incorrect.

80. Mr. Kaul invited our attention to the following findings of this Court to buttress his submission.

 

“…However, what is missed by Shri Rohatgi is the crucial fact that no price for the coal to be lifted was stated in any of the emails or letters exchanged during this period. This is in fact what the Majority Award adverts to and fills up by having recourse to the evidence given by Mr. Wilcox, stating that the ambiguity qua price was resolved by the fact that no coal was available for lifting at a price lower than the contractual price. The Majority Award found, relying upon Mr. Wilcox’s evidence, that the supplies that were sought to be made in August and September, 2009 were therefore, also in the nature of “mixed” supplies, i.e., coal at the contractual price, as well as coal at a much lower price. This is a finding of fact that cannot be characterised as perverse, as it is clear from the evidence led, the factual matrix of the setting of there being a slump in the market, in which the performance of the contract took place, as well as the ambiguity as to whether the correspondence referred to contractual price or “mixed” price, and thus, is a possible view to take.”

 

MMTCS CONTRACT WITH BMA – SAME PERIOD / SAME PRICE (APPROXIMATELY): –

81. Dealing with the aspect of the contracted price, namely, US$ 300 PMT, Mr. Kaul highlighted the fact that MMTC had a parallel contract with BHP Billiton Mitsubishi Alliance (BMA). Under the said contract, MMTC lifted five lakh tons of hard coking coal at US$ 300 PMT (Goonyella Middle Seam brand) and US$ 292.5 PMT (Torrington brand) and US$ 270 PMT (soft coking coal) and absolutely no grievance was made about the said contract with BMA. Quantities were lifted and price paid without demur, contends Mr. Kaul. Mr. Kaul further submitted that in fact the price paid to BMA was used as a defence when Anglo sought damages pointing to market price at US$ 126 PMT. The argument of MMTC before the arbitrators was that there was no scope for damages as the market price was what they had paid to BMA.

82. In response to the aspect of supply by BMA, learned ASG submitted that the said transaction was vastly different from the one entered with MMTC. The learned ASG submitted that

 

a. The agreement entertained between BMA and MMTC was qua 5,00,000 MT hard coking coal and 3,00,000 black water soft coking coal whereas Addendum 2 with Anglo by MMTC was only qua 4,66,000 hard coking coal.

b. BMA showed flexibility, commercial wisdom and prudence by providing coking coal at the rate agreed that is US$ 292.50 for Torrington brand coking coal and US$ 270 Black water soft coking coal in a staggered manner which commenced from 25.05.2009 till 23.06.2012.

c. BMA continued to supply the much needed hard coking coal to the tune of 3,21,410 MT for operating the NINL plan at the prevailing market rate that is US$ 122 PMT whereas Anglo adopted an extremely hard and uncompromising stand and refused to supply coking coal, except for one adhoc quantity of 40,446 MT of coking coal at US$ 128.25 PMT on 05.08.2009.

d. The quality of coking coal supplied by BMA was different from the one supplied by Anglo.

 

LONG CONTINUANCE OF MR. VED PRAKASH: –

83. Dealing with the contention of the learned ASG that Mr. Ved Prakash, being at the helm of affairs in different senior positions from 2008 to 2020, Mr. Kaul submitted that the arbitration proceedings and the Court proceedings were hotly contested and that at no point was the issue of fraud and collusion and breach of fiduciary duty in the making of the contract ever raised. Mr. Kaul pointed out that Mr. Ved Prakash retired on 29.02.2020 when judgment was reserved in the Section 37-Appeal of MMTC. The judgment was pronounced on 02.03.2020 in favour of MMTC and cited this to rebut the contention that Mr. Ved Prakash and team played a friendly match. Mr. Kaul further submitted that Anglo carried the matter further to this Court and by a detailed judgement this Court upheld the award and restored the findings of the learned Single Judge.

84. Mr. Kaul invited our attention to the following findings of this Court in judgment dated 17.12.2020.

 

“3. “Under clause 2 of the LTA, which refers to “Price”, for subsequent Delivery Periods, including the “Fifth Delivery Period”, with which we are directly concerned, it is undisputed that when read with Annexure I of the LTA and a letter dated 14.08.2008, setting out the terms of the Fifth Delivery Period, the price fixed at $300 per metric tonne .. “

 

10. “Shri Kapil Sibal, learned Senior Advocate appearing on behalf of the Appellant, painstakingly took us through the LTA and the entire correspondence that ensued between the parties. He argued that all the findings given by the Majority Award were findings of fact, there having been little dispute on the construction of any term of the LTA; no dispute as to the contracted quantity of coal that was to be supplied in the Fifth Delivery Period, i.e. 466,000 metric tonnes: no dispute as to the price at which such coal was to be supplied, i.e., at the rate of $300 per metric tonne; and no dispute as to the quantity of coal that remained unlifted, i.e., 454,034 metric tonnes. The only issue before the Arbitral Tribunal was whether the Appellant was unable to supply the contracted quantity of coal at the contractual price, or whether the Respondent was unwilling to lift the quantity of coal at the contractual price, both being purely questions of fact as to the performance of contractual obligations stemming from the LTA.”

14. “Shri Mukul Rohatgi, learned Senior Advocate appearing on behalf of the Respondent, supported the impugned judgment of the Division Bench … According to him… the Respondent was in a position to take supplies, and did in fact demand that supplies of coal be made in accordance with the LTA.”

17. “The first and most important point, therefore, to be noted is that this is a case in which there is a finding of fact by the Majority Award that the Appellant was able to supply the contracted quantity of coal for the Fifth Delivery Period, at the contractual price, and that it was the Respondent who was unwilling to lift the coal, owing to a slump in the market, the Respondent being conscious of the fact that mere commercial difficulty in performing a contract would not amount to frustration of the contract. It was for this reason that the Respondent decided, as an afterthought, in reply to the Appellant’s legal notice dated 04.03.2010, to attack the Appellant on the ground that it was the Appellant that was unable to supply the contracted quantity in the Fifth Delivery Period.”

 

IMPACT OF THE FIRST INFORMATION REPORT: –

85. Mr. N. Venkataraman, learned ASG, drew attention to the complaints filed by MMTC which resulted in the registration of the First Information Report on 21.07.2025. The FIR is registered for offences under Section 120(B), IPC, and Sections 13(2) read with 13(1)(d) of the Prevention of Corruption Act, 1988 [PC Act]. The FIR is lodged by Shri Abhay Kumar, General Manager, MMTC, New Delhi. The FIR records that the information prima facie disclosed commission of offences punishable under the Sections referred to above. The FIR is registered against 13 named officials of MMTC, against the Anglo, against unknown officials of MMTC and Anglo and other unknown persons.

86. FIR refers to the background of the Long Term Agreement (LTA) dated 07.03.2007 details about the 5th delivery period; the quantity agreed to be procured and the price of US$ 300 PMT, labeled as massively inflated. The FIR makes reference to Addendum 2 dated 20.11.2008 having been entered into ignoring NINL letter of 16.10.2008 and attributes collusion between MMTC and Anglo officials for execution of Addendum 2 at a peak price when the Lehman Brothers collapse happened in September 2008. 87. The FIR further mentions that the SPCoD approved Addendum 2, based on misleading inputs from Mr. Ved Prakash and Suresh Babu who failed to disclose the reduced demand and obtained approval under false pretences amounting to administrative frauds. A reference is also made to the letter of the same dated 20.11.2008 seeking reduction of price. FIR refers in detail to the subsequent correspondence which, according to the complaint, discloses that officials did not assert the legal position of MMTC against Anglo. A particular reference is made to the use of phrase “we are not denying our obligation” in the letter of 25.09.2009 which, according to the complaint, weakened the MMTCs defense in arbitration.

88. The FIR refers to an allegation about Anglo providing reduced price US$ 128 PMT and staggered deliveries to SAIL and RINL but refusal of the same to MMTC/NINL. It alleges that MMTC officials failed to invoke parity or renegotiation clauses, indicating deliberate inaction. It was stated in the FIR that all this suggested that there was exchange of unlawful and illegal consideration between the erring officials of MMTC and Anglo.

89. As will be noticed above, the gravamen of the allegations in the FIR is similar to the allegations set out in the proceedings before us which we have discussed in detail hereinabove.

90. Alluding to the First Information Report, Mr. Kaul submitted that the whole attempt to file a criminal complaint and get the FIR registered is a malicious attempt to wriggle out of the award and mere pendency of the FIR could not render the award inexecutable. Mr. Kaul submitted that MMTC filed a criminal complaint with the CBI on 02.09.2022 with the follow-up complaint on 23.11.2022. The CBI registered the preliminary enquiry on 09.01.2023. MMTC moved the CBI Court seeking a direction to register the FIR. The CBI Court passed a judgment on 09.05.2024 stating that it did not have power to direct the CBI to register the FIR. On 01.03.2025, MMTC filed a Revision Petition against CBI Courts order before the High Court. In the meantime, the Executing Court allowed the Enforcement Petition and dismissed the MMTCs objections on 09.05.2025 which is the order impugned herein.

91. During the pendency of this Special Leave Petition, and when arguments have been heard on 22.05.2025 and 23.05.2025 and when the matter was posted after the partial working days i.e., for 24.07.2025, on 20.07.20205 MMTC filed the follow-up complaint with the CBI and the CBI, very promptly, registered the FIR on 21.07.2025. Mr. Kaul submitted that all this was done when the matter was part-heard only to create some support to the allegations of fraud. Mr. Kaul made a grievance that no leave of the Court was taken and that MMTC had resorted to abuse of the legal process of the Court. Mr. Kaul submits that execution of the award cannot be kept in abeyance pending an FIR based on a self-serving and convenient criminal complaint.

92. The FIR has been filed for the offences punishable under Section 120B, IPC, read with Section 13(2) and 13(1)(d) of the PC Act, against named public servants of MMTC the respondent company, unknown officials of MMTC and the respondent.

93. Mr. Kaul, learned Senior Counsel, submitted that had there been criminal conspiracy/fraud, the common course of human conduct of recalcitrant parties would be to lift the coal at the agreed price, pay the amount, and share the booty. Instead, here was a case where not only was the contracted quantity not lifted except to the extent of 11,966 MT, leaving a huge amount of contracted quantity un-lifted, Anglo had to litigate for the last 15 years and have still not seen the fruits of the award. To say that there was collusion, submits Mr. Kaul, would be completely unjustified.

ANALYSIS

94. We have set out hereinabove the contentions of both the parties to enable us to examine the issue whether at least prima facie the case of breach of fiduciary duty has been established by MMTC in this appeal. From the analysis of the pros and cons of the case advanced by both the parties, the following undisputed facts/irresistible deductions emerge:-

 

a. That there was a Long Term Agreement (LTA) between the parties on 07.03.2007 which for the first three delivery periods clearly prescribed the quantity of 4,66,000 MT as the yearly base quantity of which 4,64,374 MT was fixed for the first delivery period, 3,82,769 MT was fixed for the 2nd delivery and 4,66,000 was fixed for 3rd delivery period.

b. In clause 2 of the LTA, the price for the 1st and 2nd delivery period was prescribed. For the subsequent delivery period, the price was fixed in accordance with para 1 of the General Conditions of the Agreement (GCA). Para 1.1 of GCA prescribed that the price was to be mutually discussed and settled at the same price as settled between Anglo and SAIL/RINL.

c. Under clause 1.3 of the LTA, the option to extend the duration of the agreement was to be exercised by 31.01.2007. It has not been disputed before us that a MoU dated 30.01.2007 was executed between MMTC and Anglo. Under the MoU read with Clause 1.3 of LTA, supply of a quantity of 4,66,000 MT at a price to be finalized by the Empowered Joint Committee for SAIL/RINL was agreed upon. The contract was extended further for 2 years, covering the 4th and 5th delivery period.

d. MoU also indicates that based on correspondence and even before the execution of the Long Term Agreement, the first, 2nd and part of the 3rd delivery period was even completed. So parties had, based on correspondence, discharged their obligations.

e. It is not disputed that the 4 delivery periods namely the first, second, third and fourth passed on peacefully with no dispute between the parties.

f. The 5th delivery period was to begin on 01.07.2008. However, the 4th delivery period under the 3 month extension clause stood extended till 30.09.2008 and in fact was further extended for a month to 30.10.2008.

g. It is also not disputed that the Empowered Joint Committee on 8th and 9th May 2008, did approve a price of US$ 300 PMT for supply for coal to SAIL/RINL. This is important because the price fixed for SAIL/RINL is linked to the price that MMTC was to pay.

h. It is also not disputed that with the last shipment of the 4th delivery period, 2366 MT pertaining to the 5th delivery period was also shipped on 30.10.2010.

i. The EJC, fixed the price for the 5th delivery period on 8th and 9th May 2008. The Lehman brothers fiasco happened in mid-September 2008.

j. The internal note for the finalization of terms for the 5th delivery period is of 03.06.2008 which expressed the concern that the spot price for coal was US$ 400 PMT FOB.

k. The Addendum signed on 20.11.2008 followed after the quantity of 2366 MT as part of the 5th delivery period had already been shipped. The explanation of the learned ASG is that this was only to save dead freight.

l. SPCoD approval Minutes of 06.10.2008 was also signed by Mr. H.S. Mann whose initial note of April 2008 was one of the main points urged by MMTC before us. The approval also noticed the recent fall in prices of pig iron and steel products and did in fact suggest exploring possibility of reduction in quantity.

m. The explanation of Anglo that NINL had no say in the quantity since the quantity was fixed in the LTA and MoU and that in fact, NINLs approval was only for the specification is a plausible one.

n. That MMTC purchased coal from BMA at US$ 300/292 PMT which had not been disputed and in fact the argument in the proceedings to set aside the award was based on the price paid to BMA to contend that no damages occurred to Anglo. Further, the stand of the learned ASG insofar as the supply by BMA is concerned as dealt with above shows that there was indeed supply by BMA at the rate of US$ 292 PMT and US$ 270 PMT, though the period of carryover offered may have been different.

o. The exercise of writing a letter on 20.11.2008, namely, the same day as the Addendum No.2 has been explained as an attempt by MMTC to renegotiate the price. Per se on this basis and without anything more, nothing sinister could be imputed. There has been no convincing explanation from the appellant to the argument of Anglo that the common course of human conduct of conspiring parties would be to lift the coal at the agreed price, pay the amount and share the booty, instead of litigating for 15 years.

p. The subsequent correspondence and the context in which they were written viewed in the background of the findings of this Court do not indicate that it was a friendly fight intended to commit certain admissions in the correspondence. On the concept of carryover also, the explanation by Anglo that there was no discrimination between the contract with MMTC and contract with SAIL and that a carryover offered in the respective contracts have to be viewed in the background of the “delivery periods in question” of the respective contracts is a plausible explanation borne out from the records.

q. A First Information Report by itself is only a document to set in motion a legal process. It is the version of one party and by itself we are not able to, for the reasons set out above, declare that the award upheld by this Court should be rendered inexecutable.

r. The argument that Mr. Ved Parkash orchestrated the arbitration and the litigation before the High Court of Delhi and facilitated success for Anglo is also not convincing because when Mr. Ved Prakash was at the helm, the Section 37 proceedings were prosecuted by MMTC successfully. While Ved Prakash retired on 29.02.2020 the Delhi High Court pronounced its judgement in favour of MMTC on 02.03.2020.

s. Ultimately, the arbitration was fought over a period of 2 years before the arbitrators and the matter was fought in the Delhi High Court and this Court for over a period of 6 years till this court restored the award and set aside the judgment of the Division Bench.

t. The only two arguments raised before the arbitrators and Court were:-

 

i. Anglo was incapable of supplying the agreed quantity.

ii. In any event, there was no loss in the form of damages as the market price was in the range of US$ 300 PMT as is evident from the supply done by BMA.

 

CONCLUSION: –

95. In the light of the above analysis, we are not able to conclude, on the material furnished before us, that the Senior Managerial personnel involved at the helm in MMTC during the relevant period acted in a manner as no reasonable personnel/director in the circumstances would have acted. We are also not able to conclude on the material furnished that the decisions taken were not within the range of reasonableness or that the course adopted by them was not one, a reasonably competent personnel/director would adopt. Applying the business judgment rule, the course adopted by them cannot be said to be one to which a court of law would not defer to. The appellants have not been able to even prima facie demonstrate that circumstances exist to conclude that the personnel of MMTC did not act in the best interest of the company.

96. The appeal challenges, in the prayer clause, the judgment dismissing the objections in OMP (ENF.) (COMM.) 19 of 2018. Though in the prayer clause, there is no challenge to dismissal of the application under Order XXI Rule 29 filed in EX/application (OS) 1806 of 2024, in Para 1 of the civil appeal the appellants have indicated that they are aggrieved by the said order also. Order XXI Rule 29 provides for stay of execution pending suit between decree holder and judgment debtor. We were, however, told that the suit filed itself now stands rejected under Order VII Rule 11 but a regular first appeal in RFA-28 of 2025 has been filed. Hence, an occasion for considering an Order XXI Rule 29 Application does not arise.

97. We are dealing with an objection filed under Section 47 claiming that the award as upheld by this Court is inexecutable. As held by this Court in Electrosteel (Supra) the jurisdiction lies in a narrow compass. It is the mandate of this Court that the object of Section 47 is to prevent unwarranted litigation and dispose of all objections as expeditiously as possible. This Court has warned that there is a steady rise of proceedings akin to a retrial which causes failure of realization of the fruits of a decree, unless prima facie grounds are made out entertaining objections under Section 47 would be an abuse of process.

98. An objection petition under Section 47 should not invariably be treated as a commencement of a new trial. In Rahul S. Shah Vs Jinendra Kumar Gandhi and Ors.,[14] this Court had the following telling observations to make.

 

“24. In respect of execution of a decree, Section 47 CPC contemplates adjudication of limited nature of issues relating to execution i.e. discharge or satisfaction of the decree and is aligned with the consequential provisions of Order 21 CPC. Section 47 is intended to prevent multiplicity of suits. It simply lays down the procedure and the form whereby the court reaches a decision. For the applicability of the section, two essential requisites have to be kept in mind. Firstly, the question must be the one arising between the parties and secondly, the dispute relates to the execution, discharge or satisfaction of the decree. Thus, the objective of Section 47 is to prevent unwanted litigation and dispose of all objections as expeditiously as possible.

25. These provisions contemplate that for execution of decrees, executing court must not go beyond the decree. However, there is steady rise of proceedings akin to a retrial at the time of execution causing failure of realisation of fruits of decree and relief which the party seeks from the courts despite there being a decree in their favour. Experience has shown that various objections are filed before the executing court and the decree-holder is deprived of the fruits of the litigation and the judgment-debtor, in abuse of process of law, is allowed to benefit from the subject-matter which he is otherwise not entitled to.

26. The general practice prevailing in the subordinate courts is that invariably in all execution applications, the courts first issue show-cause notice asking the judgmentdebtor as to why the decree should not be executed as is given under Order 21 Rule 22 for certain class of cases. However, this is often misconstrued as the beginning of a new trial. For example, the judgment-debtor sometimes misuses the provisions of Order 21 Rule 2 and Order 21 Rule 11 to set up an oral plea, which invariably leaves no option with the court but to record oral evidence which may be frivolous. This drags the execution proceedings indefinitely.

27. This is antithesis to the scheme of the Civil Procedure Code, which stipulates that in civil suit, all questions and issues that may arise, must be decided in one and the same trial. Order 1 and Order 2 which relate to parties to suits and frame of suits with the object of avoiding multiplicity of proceedings, provides for joinder of parties and joinder of cause of action so that common questions of law and facts could be decided at one go.”

 

[14] (2021) 6 SCC 418

 

POSTSCRIPT :-

99. Before we part, a small postscript. Whether in Government, Public Sector Corporations or even in the private sector, the driving force of the entity are the persons who administer them. A certain play in the joints is inevitable for their day-to-day functioning. If they are shackled with the fear that, their decisions taken for the day-to-day administration, could years later with the benefit of hindsight, be viewed with a jaundiced eye, it will create a chilling effect on them. A tendency to play it safe will set in. Decision making will be avoided. Policy paralysis will descend. All this will in the long run prove detrimental not just to that entity but to the nation itself. We are not to be understood to be condoning decisions taken for improper purposes or extraneous considerations. All that we are at pains to drive home is that great caution and circumspection have to be exercised before such allegations are brought forward and adequate proof must exist to back them. Otherwise for fear that carefully built reputations could be casually tarnished, best of talent will not be forthcoming, especially for government and public sector corporations.

100. In view of what is stated hereinabove, we find no merit in the objections filed by MMTC under Section 47 of the CPC.

There are no good grounds to entertain the same. The appeal is dismissed. No order as to costs.

2025 INSC 1238

SUPREME COURT OF INDIA

DIVISION BENCH

KARAM SINGH

Vs.

AMARJIT SINGH AND OTHERS

( Before : J.B. Pardiwala and Manoj Misra, JJ. )

Civil Appeal Nos…of 2025 (Arising out of SLP (C) Nos. 3560-3561 of 2023)

Decided on : 15-10-2025

A. Civil Procedure Code, 1908 (CPC) — Order 7 Rule 11(d) — Rejection of plaint — Suit barred by law — Court can only consider averments in the plaint to determine if the suit is barred by law, not the defense — The issue of limitation, especially when it is a mixed question of law and fact, cannot be a ground for rejecting the plaint at the threshold under Order VII Rule 11(d) CPC. (Para 15)

B. Civil Procedure Code, 1908 (CPC) — Order 7 Rule 11(d) — Rejection of plaint — Suit barred by limitation — Suit for possession based on title — Limitation period for possession based on title is 12 years from when possession becomes adverse, as per Article 65 of the Limitation Act — A suit for possession based on title cannot be summarily rejected on limitation grounds if the title is established and adverse possession is not proven. (Para 17)

C. Limitation Act, 1963 — Article 65 — Suit for possession of immovable property based on title — For a suit for possession of immovable property or any interest therein, based on title, the limitation period is 12 years from the date when the possession of the defendants becomes adverse- to the plaintiff. (Para 17)

D. Limitation Act, 1963 — Article 58, Article 65 — Suit for declaration of title and suit for recovery of possession — Limitation for declaration of title is 3 years, but for recovery of possession based on title, it is 12 years — A suit for declaration of title to immovable property is not barred as long as the right to such property continues to subsist. The principle is that the suit for declaration for a right cannot be held to be barred so long as the right to property subsists. (Para 20)

E. Civil Procedure Code, 1908 (CPC) — Order 2 Rule 2 — Bar of suit — Suit dismissed under Order VII Rule 11(d) — When a previous suit is rejected under Order VII Rule 11 CPC as not being properly framed, a fresh suit with appropriate reliefs cannot be prima facie barred by Order II Rule 2 of CPC. (Para 22)

F. Civil Procedure Code, 1908 (CPC) — Order 7 Rule 11(d) — Rejection of plaint — Appeal allowed, impugned order set aside — High Court erred in holding the suit to be barred by limitation by overlooking averments in the plaint, particularly the fact that mutation proceedings culminated in 2017 and the suit falling within the limitation period thereafter. (Para 23)

G. Civil Procedure Code, 1908 (CPC) — Rejection of plaint under Order VII Rule 11 — Court should not be swayed by mere age of documents or proceedings but should consider the plaint averments and the specific reliefs sought — The question of adverse possession is a mixed question of law and fact and cannot be a basis to reject the plaint at the threshold. (Para 23)

H. Civil Procedure Code, 1908 (CPC) — Order 7 Rule 11 — Rejection of plaint — Any observation made by the court while deciding rejection of plaint should not be taken as an opinion on the merits of the issues arising in the suit proceedings. (Para 23)

I. Civil Procedure Cde, 1908 (CPC) — Order 7 Rule 11(d) — Rejection of plaint — Scope of inquiry — While considering rejection of plaint under Order VII Rule 11(d), only averments made in the plaint are to be considered; the defense is not to be considered at this stage. (Para 15)

J. Civil Procedure Code, 1908 (CPC) — Limitations of Order VII Rule 11 — Rejection of plaint at the threshold is a drastic power and should be exercised sparingly and only when the conditions under Order VII Rule 11 are clearly met. (Para 15)

K. Civil Procedure Code, 1908 (CPC) — Suit based on title — Averments in the plaint indicated that mutation proceedings culminated in 2017 and the suit was instituted within three years thereafter, therefore, the institution of the suit questioning the same is not ex facie barred by law. (Para 16)

L. Civil Procedure Code, 1908 (CPC) — Rejection of plaint vs. Trial — Trial court was justified in directing that the issue, whether the suit is barred by Order 2 Rule 2 of CPC, shall be considered and decided during trial. (Para 22)

JUDGMENT

Manoj Misra, J. – Leave granted.

2. These two appeals impugn two orders of the High Court of Punjab and Haryana at Chandigarh[1]. The first is dated 27.01.2022 passed in Civil Revision No.725/2020 whereas the second is dated 04.07.2022 by which application[2] seeking recall of the order dated 27.01.2022 has been rejected.

[1] The High Court.

[2] Misc. Application No.7259/2022

3. The appellant along with Dilbag Singh (i.e., proforma respondent no. 9) instituted Suit No.424 of 2019 against Amarjit Singh (i.e., respondent no.1), Shamsher Singh (i.e., respondent no.2), Jagdish Singh (i.e., respondent no.3), Smt. Nachhattar Kaur (i.e., respondent no.4), Kuldeep Kaur (i.e., respondent no.5), Sukhdeep Kaur (i.e., respondent no.8), Sandeep Singh (i.e., respondent no.6) and Major Singh (i.e., respondent no.7) for:

(i) declaring: (a) plaintiff(s) owners of suit land to the extent of their shares as specified in the plaint; and (b) the certificate, registered at 277 on 12.01.1977, and mutation no.1377 as illegal, null and void;

(ii) possession of suit land to the extent of plaintiffs’ share;

(iii) damages/ compensation/ mesne profits for use and occupation of suit land for the period starting from May 2016 to May 2019; and

(iv) permanent prohibitory injunction.

4. The plaint case in a nutshell was that the original owner of the suit land was Ronak Singh alias Ronaki who died intestate on 05.10.1924, leaving behind his widow Kartar Kaur. A dispute arose regarding succession to the estate of Ronak Singh between Kartar Kaur (i.e. Ronak Singh’s widow) and Chinki and Nikki (i.e. sisters of Ronak Singh), predecessor-in interest of the plaintiffs. In between, Kartar Kaur allegedly gifted the suit land to one Harchand. Nikki and Chinki challenged the gift. On 22.03.1935, the civil court held the gift to be invalid as Kartar Kaur had a limited right. Later, Kartar Kaur herself challenged the gift. Ultimately, the gift was set aside by decree dated 11.09.1975 and Kartar Kaur was held owner in possession of the land. Consequent to the decree, on 13.05.1976 mutation was sanctioned and entered in favour of Kartar Kaur. The mutation entry was contested by predecessor in-interest of the plaintiffs. During pendency of the proceedings relating to mutation, Kartar Kaur died on 28.12.1983. The defendants in the suit, namely, the contesting respondents herein, in the mutation proceedings, set up a will dated 15.12.1976, alleged to have been executed by Kartar Kaur, in their favour and claimed mutation on basis thereof. However, vide order dated 29.04.1984, mutation was ordered in favour of the legal representatives of Ronak Singh’s sister based on natural succession and an appeal against the same, filed by the respondents, was dismissed by the Collector vide order dated 15.04.1985. Subsequently, the mutation matter was taken up to higher courts. Finally, the litigation arising out of mutation ended against the plaintiffs on 20.07.2017. Thereafter, by claiming that the will set up by the defendants is null and void, an act of fraud, the plaintiffs claiming themselves to be natural heirs of Kartar Kaur, through sisters of Ronak Singh, instituted the suit for the aforesaid reliefs.

5. The defendants (i.e. the contesting respondents) filed an application under Order 7 Rule 11 (d) of the Code of Civil Procedure, 1908[3] for rejection of the plaint on the ground that the suit is hopelessly barred by time. In the application it was, inter alia, stated that the will was set up in the year 1983 after the death of Kartar Kaur; the mutation proceedings based on the will was contested and therefore, the plaintiffs including their predecessor in interest were fully aware of the existence of the will; hence, the relief for declaration qua the will, limitation of which is three years, was hopelessly barred by limitation. It was also contended that the plaintiffs’ stand that cause of action had arisen on 20.07.2017 is incorrect and wrong. In addition to above, it was stated that plaintiffs have concealed a material fact regarding filing of civil suit no.648/2012, which was filed by father of plaintiff no.1, wherein the order of mutation dated 28.05.2012 was challenged without challenging the will and, therefore, the plaint of the said suit was rejected under Order 7 Rule 11 of CPC vide order dated 17.05.2013. It was thus claimed that the suit was also barred by Order 2 Rule 2 of C.P.C.

[3] CPC

6. The trial court rejected the application under Order 7 Rule 11 of CPC, vide order dated 07.01.2020, holding that on a plain reading of the plaint it cannot be held that the suit is ex facie barred by limitation; moreover, the question of limitation is a mixed of question of law and fact therefore, it would not be appropriate to reject the plaint under Order 7 Rule 11 of CPC. As regards the plea of suit being barred by Order 2 Rule 2 of C.P.C., the trial court held that the same can be decided as an issue in the suit.

7. Aggrieved by rejection of their application under Order 7 Rule 11, the contesting respondents preferred revision before the High Court which came to be allowed by the impugned order dated 27.01.2022.

8. As the impugned order dated 27.01.2022 was passed ex parte in as much as none had appeared on behalf of the plaintiff in the revision, an application was filed for recall of the order dated 27.01.2022, which came to be dismissed by second impugned order dated 04.07.2022.

9. Aggrieved by the aforesaid two orders, these two appeals have been filed.

10. We have heard learned counsel for the parties and have also given liberty to the counsel for the parties to file written submissions.

SUBMISSIONS ON BEHALF OF THE APPELLANT

11. The learned counsel for the appellant submitted that the High Court committed a grave error in holding that the suit was barred by time. In holding so, the High Court observed that the suit was instituted after almost 36 years since culmination of mutation proceedings, which is incorrect in as much as mutation proceedings culminated on 20.07.2017 and the suit was instituted on 31.05.2019 (i.e., within three years thereof). In addition to above, it was contended that the suit was for possession, based on title. Since the main relief was for possession, the limitation period would be 12 years from the date when the possession of defendants became hostile and adverse to the plaintiff. The High Court, however, failed to consider that aspect.

12. Besides above, notice of the revision before the High Court was not served on the respondents and therefore, the first impugned order, which is an ex parte order, ought to have been recalled. On the strength of above submissions, the learned counsel for the appellant contended that it is a fit case where the appeals should be allowed and the impugned order(s) set aside.

SUBMISSIONS ON BEHALF OF THE RESPONDENTS

13. On behalf of the respondents, it was contended that predecessor in interest of the appellant had earlier instituted civil suit no. 648/2012 seeking permanent prohibitory injunction to restrain the answering respondents from alienating the suit property. The said suit was dismissed on 17.05.2013 on the ground that there could be no injunction against true owner. Since the present suit is based on the same cause of action, the same is liable to be dismissed as being nothing but abuse of the process of law. Moreover, the suit is barred by limitation as plaintiffs had knowledge of the registered will since 1983.

14. In support of his submissions, the learned counsel for the respondents placed reliance on the following decisions of this court:

(i) T. Arivandandam vs. T.V. Satyapal[4].

(ii) Rajendra Bajoria & Ors. vs. Hemant Kumar Jalan[5].

(iii) Ramisetty Venkatanna & Anr. vs. Nasyam Jamal Saheb & Ors.[6].

[4] (1977) 4 SCC 467

[5] (2022) 12 SCC 641

[6] 2023 SCC Online SC 521

DISCUSSION/ANALYSIS

15. Before we assess the correctness of the impugned orders, we must remind ourselves of the basic principles governing rejection of a plaint under Order 7 Rule 11[7] of CPC. Here, the defendants seek rejection of plaint under clause (d) of Rule 11 (i.e., suit barred by law). Clause (d) makes it clear that while considering rejection of the plaint thereunder only the averments made in the plaint and nothing else is to be considered to find out whether the suit is barred by law. At this stage, the defense is not to be considered. Thus, whether the suit is barred by any law or not is to be determined on the basis of averments made in the plaint.

[7] 11. Rejection of plaint. – The plaint shall be rejected in the following cases:-

(a) where it does not disclose a cause of action;

(b) where the relief claimed is undervalued, and the plaintiff, on being required by the Court to correct the valuation within a time to be fixed by the Court, fails to do so;

(c) where the relief claimed is properly valued, but the plaint is returned upon paper insufficiently stamped, and the plaintiff, on being required by the Court to supply the requisite stamp-paper within a time to be fixed by the Court, fails to do so;

(d) where the suit appears from the statement in the plaint to be barred by any law;

(e) where it is not filed in duplicate;

(f) where the plaintiff fails to comply with the provisions of rule 9:

Provided that the time fixed by the Court for the correction of the valuation or supplying of the requisite stamp-paper shall not be extended unless the Court, for reasons to be recorded, is satisfied that the plaintiff was prevented by any cause of an exceptional nature form correcting the valuation or supplying the requisite stamp-paper, as the case may be, within the time fixed by the Court and that refusal to extend such time would cause grave injustice to the plaintiff.

16. In the instant case, the plaintiff instituted the suit by claiming title through succession to the estate of late Kartar Kaur. On the other hand, the defendants had set up a will alleged to have been executed by Kartar Kaur in their favour. Neither the plaint nor any document brought on record indicated that the will was probated or its validity was tested and upheld in regular civil proceedings inter se parties. As far as mutation proceedings are concerned, it is well settled that mutation entries do not confer title. They serve a fiscal purpose, that is, to realize tax from the person whose name is recorded in the revenue records[8]. Besides above, the plaint averments indicated that the mutation proceedings culminated in the year 2017 and the suit in question was instituted within three years thereafter.

[8] See: Balwant Singh v. Daulat Singh, (1997) 7 SCC 137; Suraj Bhan v. Financial Commissioner, (2007) 6 SCC 186

17. Apart from above, the suit was not for a mere declaration of the will being null and void but for possession as well. The plaintiff claimed title over the suit land by natural succession and sought possession based on title. Where a suit is for possession of immovable property or any interest therein, based on title, the limitation period is 12 years when the possession of the defendants becomes adverse to the plaintiff (vide Article 65 of the Schedule to the Limitation Act).

18. In Indira v. Arumugam & Anr.[9], this court held that when the suit is based on title for possession, once the title is established based on relevant documents and other evidence, unless the defendant proves adverse possession for the prescriptive period, the plaintiff cannot be non-suited. Consequently, when a suit is instituted for possession, based on title, to defeat the suit on the ground of adverse possession, the burden is on the defendant to prove adverse possession for the prescriptive period. This, therefore, in our view, cannot be an issue on which the plaint could be rejected at the threshold. Moreover, the plaintiffs herein, had clearly disclosed that they had been contesting the will in the mutation proceedings which culminated in the year 2017. The suit was instituted within three years thereafter to declare the mutation entry illegal. Thus, considering that mutation proceedings are summary in nature, the institution of the regular suit questioning the same is not ex facie barred by law[10].

[9] (1998) 1 SCC 614

[10] See: Jitendra Singh vs. State of Madhya Pradesh and others, 2021 SCC OnLine SC 802; Faqruddin (Dead) through LRs vs. Tajuddin (Dead) through LRs, (2008) 8 SCC 12; Rajinder Singh vs. State of Jammu and Kashmir & others, (2008) 9 SCC 368

19. That apart, where several reliefs are sought in suit, if any one of the reliefs is within the period of limitation, the plaint cannot be rejected as barred by law by taking recourse to Order 7 Rule 11 (d) of CPC[11].

[11] See: Vinod Infra Developers Ltd. vs. Mahaveer Lunia, 2025 SCC OnLine SC 1208

20. Further, in “N. Thajudeen v. Tamil Nadu Khadi & Village Industries Board” [12] relying on earlier decision of this court in “C. Mohammad Yunus v. Syed Unnissa“[13] it was held:

“23. …in a suit for declaration with a further relief, the limitation would be governed by the Article governing the suit for such further relief. In fact, a suit for a declaration of title to immovable property would not be barred so long as the right to such a property continues and subsists. When such right continues to subsist, the relief for declaration would be a continuing right and there would be no limitation for such a suit. The principle is that the suit for a declaration for a right cannot be held to be barred so long as Right to Property subsist”.

24. Even otherwise, though the limitation for filing a suit for declaration of title is three years as per Article 58 of the Schedule to the Limitation Act but for recovery of possession based upon title, the limitation is 12 years from the date the possession of the defendant becomes adverse in terms of Article 65 of the Schedule to the Limitation Act. Therefore, suit for the relief of possession was not actually barred and as such the court of first instance could not have dismissed the entire suit as barred by time”.

[12] 2024 SCC Online SC 3037

[13] AIR 1961 SC 808

21. In our view, therefore, the plaint as it stood could not have been rejected on the ground that the suit as framed was barred by limitation. The view to the contrary taken by the High Court is erroneous in law.

22. Insofar as the suit being barred by Order 2 Rule 2 of CPC is concerned, the first suit instituted by the predecessor-in-interest of the appellant was not tried. In fact, the plaint of that suit was rejected under Order 7 Rule 11 of CPC as not being properly framed. In such circumstances, a fresh suit with appropriate relief cannot be, prima facie, barred by Rule 2 of Order 2 of CPC. Therefore, in our view, the trial court was justified in directing that the issue, whether the suit is barred by Order 2 Rule 2 of CPC, shall be considered and decided during trial.

23. At this stage, we may observe that the High Court while deciding the revision has failed to consider the plaint averments in its entirety and was swayed only by the fact that will set up was 36 years old. It overlooked that will operates only on the death of the testator and here, after the death of the testator, the validity of the will was throughout questioned in mutation proceedings which continued and, ultimately, settled in the year 2017. In between, whether the defendants perfected their title by adverse possession would be a mixed question of law and fact and can appropriately be addressed only after evidence is led. The same cannot be made basis to reject the plaint at the threshold. In our view, therefore, the order passed by the High Court cannot be sustained and the same is liable to be set aside. The appeals are, therefore, allowed. The impugned judgment and order(s) of the High Court are set aside. The order of the trial court rejecting the prayer to reject the plaint under Order 7 Rule 11 CPC is restored. The trial court shall proceed with the suit and bring the proceedings to its logical conclusion in accordance with law. It is made clear that any observation made by us shall not be taken as an opinion on the merit of the issues which may arise for consideration in the course of the suit proceedings. We clarify that we have addressed those issues only with a view to find out whether it was a fit case for rejection of the plaint under Order 7 Rule 11 of CPC.

24. Pending application (s), if any, shall stand disposed of.

2025 INSC 1202

SUPREME COURT OF INDIA

DIVISION BENCH

M/S ANVITA AUTO TECH WORKS PVT. LTD.

Vs.

M/S AROUSH MOTORS AND ANOTHER

( Before : Aravind Kumar and N.V. Anjaria, JJ. )

Civil Appeal No….of 2025 (Arising out of Special Leave Petition (Civil) No. 21917 of 2025)

Decided on : 08-10-2025

A. Civil Procedure Code, 1908 (CPC) — Order 8 Rule 1 — Limitation for filing Written Statement in Commercial Suits — Extension of time due to COVID-19 pandemic — Supreme Court’s suo motu order excluded period from 15.03.2020 to 28.02.2022 for computing limitation — Even if statutory period of 120 days expired, if it fell within the excluded period, defendant should be allowed to file Written Statement. (Paras 15, 26, 28, 30)

B. Civil Procedure Code, 1908 (CPC) — Order 8 Rule 10 — Passing of Decree — Mere non-filing of Written Statement does not automatically empower court to pass a decree — Court must assess if a prima facie case is made out. (Para 18)

C. Civil Procedure Code, 1908 (CPC) — Rights of Defendant without Written Statement — Defendant’s right to cross-examine plaintiff’s witnesses is not foreclosed even if Written Statement is not filed or suit proceeds ex-parte — Cross-examination is crucial for eliciting truth and impeaching credibility. (Paras 17, 31)

D. Interpretation of Statutes — Procedural Law — Principle of Substantial Justice — Procedural rules are aids to justice, not tyrants — Rigid adherence to technicalities that cause injustice must be avoided — Substantial justice should not be sacrificed at the altar of procedural rigidity. (Paras 2, 3, 19)

E. Commercial Courts Act, 2015 — Object and Purpose — To expedite disposal of commercial disputes — Provisions like Order 8 Rule 1 CPC in commercial courts are designed to ensure timely adjudication — However, flexibility is required when extraordinary circumstances like a pandemic hinder compliance. (Para 26)

F. Limitation Act, 1963 — General Clauses Act, 1897 — Section 9 — Exclusion of day of service — When calculating the period of limitation, the day on which the summons was served is to be excluded. (Para 30)

G. Constitution of India, 1950 — Article 142 — Exercise of Power — Supreme Court can pass any order necessary for doing complete justice, including extending limitation periods due to extraordinary circumstances like the COVID-19 pandemic. (Para 28)

H. Remand of Cases — Trial Court — Where lower courts erred by rejecting Written Statement and denying right to cross-examine due to technicalities, and the Supreme Court’s intervention is warranted due to the COVID-19 pandemic’s impact on limitation, the case will be remanded to the trial court to allow filing of Written Statement, subject to costs, and to permit cross-examination. (Para 32)

JUDGMENT

Aravind Kumar, J. – Heard. Leave Granted.

2. The present controversy can be encapsulated in words of the Hon’ble Justice V.R. Krishna Iyer:

“Procedural law is not to be a tyrant but a servant, not an obstruction but an aid to justice. It is the handmaid of justice and not its mistress”

3. The object of the procedural rules is to advance the cause of justice and not to thwart it and when the rigid adherence to technicalities of procedure causes injustice, courts have to come to the rescue by adopting a liberal approach. The courts cannot countenance a situation where substantial justice is sacrificed at the altar of procedural rigidity. Where substantial justice is at stake, technicalities must give way to ensure that the litigant is afforded sufficient opportunity to defend. The present controversy must be tested on the said principle.

4. The Appellant herein challenges the Impugned Judgement and order dated 20.05.2025 passed by the High Court of Karnataka at Bengaluru in Commercial Appeal No. 19 of 2023 which has affirmed the Judgement and decree dated 15.11.2022 passed by the Additional City Civil & Sessions Judge (Exclusive Commercial Court) in Original Commercial Suit No. 372 of 2021 filed by the Respondent No. 1-M/s. Aroush Motors for recovery of monies.

5. For convenience, we will be referring the parties as per their rank before the Trial Court, as such, the Appellant herein being Defendant No. 1 and Respondent No. 1 & 2, being Plaintiff and Defendant No. 2, respectively.

6. The facts shorn of unnecessary details are summarized hereinunder:

7. The Defendant No. 1-M/s. Anvita Auto Tech Works Pvt. Ltd. (Appellant-herein), launched a flagship motorcycle by the name of CFMOTO in India in 2019 and invited applications for its dealership across the country including Bengaluru City. Plaintiff-M/s. Aroush Motors (Respondent No. 1-herein) applied and was provisionally appointed dealer under a Letter of Intent dated 03.09.2019. In consideration of the dealership, the plaintiff remitted a sum of Rs. 20,00,000/- (Rupees Twenty Lakhs Only) towards security deposit to Defendant No. 1, incurred expenditure of rent and interiors for setting up a showroom. Further, the plaintiff paid sum amount to Rs. 70,00,000/-(Rupees Seventy Lakhs Only) towards spare parts, software, equipment and initial stock of motorcycles. Moreover, additional sum of Rs. 5,00,000/- (Rupees Five Lakhs Only) was remitted to Defendant No. 1 and on the advice of Defendant No. 1, the plaintiff also remitted Rs. 7,06,900/- (Rupees Seven Lakhs Six Thousand Nine Hundred Only) to Defendant No. 2-Conair Equipment Pvt. Ltd (Respondent No. 2-herein) for service centre equipment being its authorised service provider.

8. The Defendant No. 1 supplied Nineteen (19) motorbikes of BS-IV Category to Plaintiff out of which the Eight (8) were sold. On 01.04.2020, the Government imposed ban on the sale of BS-IV Category vehicles, as such, Defendant No. 1 imposed prohibition upon sale of the such motorcycles but promised to supply Kits and Equipment to upgrade the motorcycles to BS-VI Category. Nevertheless, due to the inability of Defendant No. 1 to supply the same, the plaintiff’s business was stalled and is said to have sustained substantial loss, following which, the plaintiff terminated the dealership of Defendant No. 1 on 14.09.2020 alleging breach of obligations and sought recovery of monies invested by way of filing the present Commercial Original Suit (Com. O.S.) No. 372 of 2021 claiming a sum of Rs. 1,78,03,090/- (Rupees One Crore Seventy-Eight Lakhs Three Thousand Ninety Only) from Defendant No. 1 with an Interest of 18% (Eighteen Percent) and Rs. 7,06,900/- (Rupees Seven Lakhs Six Thousand Nine Hundred Only) from Defendant No. 2 with an Interest of 18% (Eighteen Percent) till the realization of payments along with 3 (Three) Interim Applications (IAs) No. I to III.

9. After the service of summons, the Defendant No. 1 appeared on 07.08.2021 but did not file the Written Statement on the said date. Later Defendant no. 1 preferred I.A. No. IV seeking extension of time to file Written Statement on 07.09.2021. Meanwhile, the 3 (three) I.As which were filed with Com. OS No. 372 of 2021, came to be decided by way of order dated 30.10.2021 wherein IA No. 1 which sought direction to defendant no. 1 to take back the remaining motorcycles from possession of plaintiff was allowed, but the other two IAs which had sought for mandatory injunction against Defendant No. 1 & 2, respectively, to refund the monies were directed to be kept in abeyance for consideration along with main suit since the nature of relief was that of final in nature.

10. On 14.11.2021, the time period of 120 days as prescribed under the law for filing Written Statement in a commercial suit expired and Defendant No. 1 again preferred I.A. No. 5 under section 148 of the Code of Civil Procedure, 1908 (hereinafter to be referred as “CPC”) seeking extension of time to file Written Statement. The plaintiff filed its objection to I.A. No. 5 on 06.12.2021 and preferred I.A. No. 6 under section 151 of CPC seeking to strike out the defence. However, while the said IAs were pending objections, the defendant no. 1 on 07.01.2022 preferred I.A. No. VI/6A along with Written Statement seeking permission to file the same by seeking condonation of delay on the premise that the delay was due to non-residing of the defendant no. 1 in Bengaluru and COVID-19.

11. The said IA came to be Rejected by order dated 22.03.2022 by the Trial Court and consequently, the Written Statement also came to be rejected. The Defendant No. 1 challenged the order of dismissal of IA by way of Commercial Appeal bearing No. 189 of 2021. Meanwhile, the Written Statement on behalf of Defendant No. 2 was also taken as Nil. The suit progressed subsequently to the stage of recording plaintiff’s evidence and on 30.07.2022, 10.08.2022 and on 19.08.2022 the examination-in-chief of PW1 was recorded and cross-examination of the defendant was taken as Nil by the Trial Court on the ground that defendant had failed to file their Written Statement within Stipulated time and the matter was posted for defendant’s evidence.

12. Ultimately, the suit came to be partly decreed on 15.11.2022 wherein Defendant No.1 was directed to pay sum of Rs. 1,78,03,090/-(Rupees One Crore Seventy-Eight Lakhs Three Thousand Ninety Only) and Defendant No. 2 was directed to pay Rs. Rs. 7,06,900/- (Rupees Seven Lakhs Six Thousand Nine Hundred Only) with future interest of 9% (Nine Percent) per annum each from the date of suit till realization. Consequently, in the light of the judgement and decree, the Commercial Appeal No. 189 of 2022 came to be dismissed as withdrawn.

13. The Defendant No.1 being aggrieved by the judgement and decree of the Trial Court preferred Commercial Appeal No. 19 of 2023 which came to be dismissed by the Impugned Order dated 20.05.2025. Hence, the present appeal.

14. We have heard the Learned Counsels appearing on behalf of the parties and perused the material on record.

SUBMISSIONS ON BEHALF OF THE APPELLANTDEFENDANT NO. 1

15. Shri Pb. Suresh, Learned Senior Counsel appearing on the behalf of the appellant submitted that court below erred in rejecting the written statement dated 07.01.2022 which is in contravention of the orders passed by this Court in Suo Moto Writ Petition (C) No. 3 of 2020 extending the limitation due to COVID-19 wherein the limitation period between 15.03.2020 to 28.02.2022 was waived off in all cases including commercial disputes. To buttress his contention, the learned senior counsel has relied upon the decisions of this court in Babasaheb Raosaheb Kobarne & Anr. vs. Pyrotek India Private Limited and Ors. 2022 SCC SC 1315 and Prakash Corporates vs. Dee Vee Projects Limited (2022) 5 SCC 112.

16. The Learned Senior Counsel further submitted that failure on the part of the defendant to file the Written Statement within the time permitted by the court would not tantamount to pronouncement of judgment against the defendant. To back the said contention, the learned senior counsel relies upon the decision of this court in Asma Lateef vs. Shabbir Ahmad (2024) 4 SCC 696.

17. The Learned Senior counsel vehemently submitted while placing reliance upon the decision of this court in Ranjit Singh vs. State of Uttarakhand, 2024 INSC 724 that even without filing of written statement, the right to cross-examine survives and not permitting the same has resulted in petitioner’s substantial rights being defeated without adjudication on merits.

18. He further submitted that Order VIII Rule 10 CPC does not empower the court to automatically pass a decree merely because a written statement is not filed. The court must still assess whether a prima facie case is made out and in the present case, the decree was passed summarily without such satisfaction being recorded.

19. He lastly submitted that if the impugned decree is executed, it would cause severe and irreparable loss to the petitioner despite him not having had a fair opportunity to contest the claim and it is settled principle that procedural rules must not be used to defeat substantial justice.

SUBMISSION ON BEHALF OF THE RESPONDENT NO. 1-PLAINTIFF

20. Per contra, Shri Balaji Srinivasan, learned counsel appearing on behalf of the respondent no. 1 submits that the right of cross-examination on the part of defendant No. 1 stood forfeited on account of non-filing of written statement. The High Court has rightly concluded that despite repeated and adequate opportunities afforded to the defendant No. 1, he wilfully chose not to exercise his right of cross-examination.

21. The Learned Counsel further submits that at no stage during the proceedings before the trial court did the defendant no. 1 Company chose to file an application for recall of the order closing the stage for crossexamination of PW1 nor did it file any appeal or writ petition challenging such order of closing the stage. Thus, defendant No.1 had acquiesced and is now estopped from raising such plea at this belated stage especially when defendant no. 1 did not take such a ground even in the memo of appeal.

22. The Learned counsel also submitted that Defendant No. 1 has approached this Court with unclean hands. Its conduct before the courts below reveal a consistent pattern of dilatory tactics, false pleadings, and abuse of process. It failed to file the Written Statement within the statutory period, allowed the opportunity of cross-examination to lapse and never challenged the orders closing its right to cross-examination at the first instance. Hence, the present Special Leave Petition is only a last-ditch attempt to obstruct & delay the lawful execution of the decree.

ISSUE FOR CONSIDERATION

23. This Court while issuing notice in the present special leave petition on 18.05.2025 was of the view that the only issue that arises for consideration is:

“Whether the High Court was correct in observing that on account of non-filing of written statement by the defendant, his right to cross-examination is taken away?”

24. Before we delve into the merits of the case, it is apposite to lay down the chronology of factual matrix pertaining to stage of suit especially which are central to the determination of the present dispute as emerges from the perusal of the material on record.

Sr. No.	Stages of Commercial Suit COM. OS NO. 372 of 2021	Date
1.	Institution of the Suit before the commercial court	18.06.2021
2.	Suit summons issued to Defendant no. 1 & defendant no. 2	23.06.2021
3.	Summons served upon the defendant no. 1	17.07.2021
4.	Defendant No. 1 entered appearance through its counsel.	07.08.2021
5.	The Commercial Court directed the defendant No. 1 to file WS by 07.09.2021	17.08.2021
6.	IA No. IV preferred by the Defendant No. 1 seeking extension of time to file WS.	07.09.2021

 

INITIAL 30 DAYS PERIOD COMPLETED

7.	Completion of Statutory period of 120 days as mandated under 2nd proviso to sub-rule (1) of Rule 1 of Order V and Proviso to sub-rule (1) of Rule 1 of Order VIII CPC as per the Special Amendment under the Commercial Courts Act, 2015.	14.11.2021
8.	Defendant No. 1 files IA No. 5 under section 148 CPC for enlargement of time for filing WS.	24.11.2021
9.	Plaintiff-Respondent No. 1 filed IA No. 6 to strike out defence under section 151 CPC and Defendant No. 1 filed IA No. 7 under section 148 CPC for extension of time to file WS.	06.12.2021
10.	IA No. VI/6A filed by the defendant no. 1 seeking permission to file WS along with WS.	07.01.2022
11.	Rejection of IA No. VI/6A and consequent rejection of WS to be taken on record.	22.03.2022
12.	Commercial Appeal No.189/2021 preferred challenging rejection of WS.	21.04.2022
13.	For recording of evidence of PW-1 adjourned at the instance of plaintiff on.	30.07.2022 to 10.08.2022
14.	Meanwhile, PW1 examined-in-chief and cross examination of Defendant taken as “Nil” as they failed to file their WS within stipulated time.	19.08.2022
15.	Suit came to be partly decreed.	15.11.2022

 

25. The aforesaid chart clearly reveals that though the summons was served upon the defendant no. 1 company on 17.07.2021, they could not file the Written Statement up till 07.01.2022 which was long after the statutory period of 120 days had already expired on 14.11.2021.

26. The law regarding the mandatory filing of Written Statement in a commercial dispute within the statutory period is clearly envisaged under Proviso to sub-rule (1) of Rule 1 of Order VIII Code of Civil Procedure, 1908 (CPC) and Second Proviso to Sub-rule (1) of Rule 1 of Order V CPC as amended by the Special Amendment under the Commercial Courts Act, 2015. The said provisions impose an absolute embargo upon the courts to accept the written statement after the expiry of one hundred twenty (120) days. For easy reference, the aforesaid bare provision of Proviso to subrule (1) of Rule 1 of Order VIII CPC is extracted herewith:

“1. Written Statement. -The defendant shall, within thirty days from the date of service of summons on him, present a Written Statement of his defence:

Provided that where the defendant fails to file written statement within the said period of thirty days, he shall be allowed to file the written statement on such other day, as may be specified by the court, for reasons to be recorded in writing and on payment of such costs as the court deems fit, but which shall not be later than one hundred twenty days from the date of service of summons and on expiry of one hundred twenty days from the date of service of summons, the defendant shall forfeit the right to file the written statement and the court shall not allow the written statement to be taken on record.”

27. The mandatory nature of statutory period in filing WS in a commercial dispute stood fortified by the decision of this court in SCG Contracts (India) Pvt. Ltd. v. K.S. Chamankar Infrastructure Private Limited and Ors. (2019) 12 SCC 210 wherein this court held that timeline of 120 days’ fixed by the statute is not directory but rather mandatory, therefore, commercial courts cannot condone the delay beyond 120 days in filing the WS. On this very aspect the appeal could have been dismissed nevertheless, there is something more vital to the present issue which this court cannot lose sight of.

28. The meticulous scrutiny of the chronological chart as mentioned supra shows that the limitation period for filing the WS commenced on 17.07.2021 and ended on 14.11.2021. Both these dates fell at a time when our nation was in garb of global pandemic of COVID-19 which affected the lives of millions of people around the world as well our judicial systems. This court was conscious of the fact as to the difficulty faced by the litigants in approaching the courts physically and was of the view that the said pandemic should not become the reason to vandalise the rights of the litigants due to expiry of period of limitation who could have approached the court well within the time had it not been for the pandemic. Hence this court In Re: Cognizance for Extension of Limitation (2022) 3 SCC 117 in Suo Moto Writ Petition (C) No. 3 of 2020 by exercise of its powers under Article 142 of the Constitution of India passed series of orders to exclude the period commencing from 15.03.2020 till 28.02.2022 for the purpose of computing the limitation period under any general or special laws in respect of all judicial or quasi-judicial proceedings. For the purpose of reference, the relevant portion of the order is extracted below:

I. The order dated 23.03.2020 is restored and in continuation of the subsequent orders dated 08.03.2021, 27.04.2021 and 23.09.2021, it is directed that the period from 15.03.2020 till 28.02.2022 shall stand excluded for the purposes of limitation as may be prescribed under any general or special laws in respect of all judicial or quasijudicial proceedings.

II. Consequently, the balance period of limitation remaining as on 03.10.2021, if any, shall become available with effect from 01.03.2022.

III. In cases where the limitation would have expired during the period between 15.03.2020 till 28.02.2022, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 01.03.2022. In the event the actual balance period of limitation remaining, with effect from 01.03.2022 is greater than 90 days, that longer period shall apply.

….”

29. This court in Aditya Khaitan & Ors. v. IL & FS Financial Services Limited 2023 INSC 867 had encountered a similar situation wherein the High Court had disallowed the appellant to file the Written Statement in a commercial dispute on the premise that the same was beyond the mandatory statutory period of 120 days. This Court while relying upon the orders passed In Re: Cognizance for Extension of Limitation (supra) allowed the appeal and directed the Written statement to be taken on record. Further this court in Babasaheb Raosaheb Kobarne & Anr. v. Pyrotek India Private Limited & Ors. 2022 SCC OnLine SC 1315 and Prakash Corporates v. Dee Vee Projects Limited (2022) 5 SCC 112 had allowed the appellant to file its written statement notwithstanding the fact that it was filed beyond the period of 120 days in the light of the COVID-19 pandemic wherein the period of limitation was extended as stated supra.

30. Relegating back to the facts of the instant case, the statutory period of 120 days commenced from date of service of summons on 17.07.2021 and as per section 9 of the General Clauses Act, 1897, the date of service had to be excluded therefore, from 18.07.2021, the 120 days’ period commenced and it ended on 14.11.2021. In the light of aforesaid discussion, it can be very well said that both the dates fell within the sweep of period between 15.02.2020 to 28.02.2022. In fact, during this period itself, to be precise on 24.11.2021 itself defendant No.1 had filed I.A. No.5 seeking enlargement of time to file written submission and subsequently on 07.01.2022 had filed IA No.VI/ 6A seeking permission to file written submission enclosing the written submission also. Therefore, the High Court ought to have excluded the aforesaid period for the purpose of filing the written statement and ought to have permitted the defendant No.1 to file written statement on record and contest the suit on merits rather than dismissing the appeal.

31. There is another consideration why the present appeal deserves to be allowed. The perusal of the records particularly, the order sheet of the trial court dated 19.08.2022 (Annexure P-17) clearly reveal that after the examination-in-chief of PW1 was closed, the cross-examination of Defendant no. 1 was taken as “Nil” on the ground that defendant had failed to file their written statement within stipulated time. The said reason is absolutely perverse and is contrary to the right of defence available to the defendant. The purpose of cross-examination is to elicit the truth from the witness and impeach its credibility. When the WS was not allowed to be taken on record, the denial of the right to cross examine cannot be taken away by leaving the defendant in lurch and this has acted as final nail in the coffin to defendant’s right of defence. This court not long back in Ranjit Singh v. State of Uttarakhand, 2024 INSC 724 had held that even when the defendant has not filed the Written statement, his right to cross-examine the plaintiff witnesses is not foreclosed. The relevant portion of the decision for easy reference is extracted herewith:

“5…..At this stage, we must clarify the legal position. Even if a defendant does not file a written statement and the suit is ordered to proceed ex-parte against him, the limited defence available to the defendant is not foreclosed. A defendant can always cross-examine the witnesses examined by the plaintiff to prove the falsity of the plaintiff’s case. A defendant can always urge, based on the plaint and the evidence of the plaintiff, that the suit was barred by a statute such as the law of limitation..”

32. Thus, in the light of the aforesaid discussion, we are of the considered view that the present appeal deserves to be allowed and accordingly, the same stands Allowed. Consequently, the impugned judgment dated 20.05.2025 in Commercial Appeal No. 19 of 2023 and consequently the judgment and decree passed in commercial suit No.372/2021 by the Addl. City Civil and Sessions Judge (Exclusive Commercial Court) dated 15.11.2022 quo defendant No.1 (Appellant herein) is set aside and the matter is remanded back to the trial court to dispose of the same after allowing the appellant herein to file the Written Statement subject to payment of cost to the tune of Rs. 1,00,000/- (Rupees One Lakh Only) and to permit the appellant to exercise his right of cross-examination of plaintiff’s witnesses. The trial court is requested to dispose of the present commercial suit expeditiously and preferably within a period of Six (6) months from today.

2025 INSC 1197

SUPREME COURT OF INDIA

DIVISION BENCH

S. SANTHANA LAKSHMI AND OTHERS

Vs.

D. RAJAMMAL

( Before : Ahsanuddin Amanullah and K. Vinod Chandran, JJ. )

Civil Appeal No….of 2025 (@Special Leave Petition (Civil) No.18943 of 2024)

Decided on : 07-10-2025

A. Civil Procedure Code, 1908 (CPC) — Jurisdiction — Suit for injunction simpliciter — Whether maintainable without a prayer for declaration of title when title is disputed — Where a party asserts title based on a Will but the defendant claims co-ownership and occupancy rights, and possession is admitted to be with the defendant, a suit for injunction simpliciter without a prayer for declaration of title may not be maintainable, especially when recovery of possession is not sought. (Para 10, 11)

B. Evidence — Proof of Will — Whether a Will is proved if signatures of testator and attesting witness are affirmed by persons who are beneficiaries and sons of deceased attesting witnesses, respectively — Evidence held sufficient to prove the Will in the context of both testators having passed away. (Para 4)

C. Property Law — Will — Validity of Will — Bequest of ancestral land — Testator’s right to bequeath property — If a property is found to be ancestral, the testator’s right to execute a Will over it may be questionable and can remain under a cloud, even if the Will is proved. (Para 3, 11)

D. Civil Procedure Code, 1908 (CPC) — Injunction — Ad interim injunction — Whether proper when possession is admitted with defendant — Granting an injunction against interference with peaceful enjoyment of property is questionable when possession is unequivocally admitted to be with the defendant, in pleadings and oral evidence. (Para 11, 12)

Supreme Court Powers — Reservation of liberty to file fresh proceedings — Where a stalemate is created in ownership due to conflicting claims and ill-drafted pleadings, the Supreme Court may reserve liberty to parties to initiate fresh proceedings for declaration of title and consequential possession, untrammelled by previous findings. (Para 12, 13)

JUDGMENT

K. Vinod Chandran, J. – Leave granted.

2. The present appeal arises from a suit filed by Rajammal against Munuswamy, her brother, for injunction simpliciter, one, to restrain alienation or encumbrance of the suit property and the other to restrain interference with the peaceful possession & enjoyment of the plaint schedule property. The plaintiff claimed absolute right over the property being half share of 1.74% acres coming to 0.87% acres of dry landed property with all appurtenances attached thereto. The claim was made specifically on the ground that by a Will dated 30.09.1985, Rangaswamy Naidu, their father had bequeathed the said property equally in favour of the plaintiff and another brother, Govindarajan. The plaintiff’s contention itself was that the defendant was continuing in the property as a tenant while the defendant claimed that he came into possession as a co-owner and later there was an arrangement, by which in the lifetime of his father, the property was equally divided between the brothers i.e. the defendant and Govindarajan.

3. The trial court found the Will to have been proved and decreed the suit injuncting the defendant from alienating the property and from interfering with the plaintiff’s peaceful possession. On appeal, the appellate court found that the bequest was made of an ancestral land, on which the testator had no right to execute the Will. The trial court judgment was upset and the suit was dismissed. In the second appeal, the High Court formulated two questions of law as to whether the appellate court was correct in finding the suit property to be a joint family property and whether Ex.B5 document produced by the defendant was properly construed.

4. The property was found to be the absolute property of the plaintiff’s father though it was purchased by the grandmother of the plaintiff. The title of the plaintiff’s father was neither questioned by the grandmother in her lifetime nor did she claim a right over the said property. Ex. A6 Will was found to have been proved since the signature of the testator was affirmed by PW1, the plaintiff and the signature of one of the testators, who was deceased, was affirmed by his own son, PW2. In the context of both the testators having passed away, the evidence was found to be sufficient to prove the Will. Based on the above findings, the right of the plaintiff over the property was established and the possession was found to follow title thus enabling both the injunctions sought for. The first appellate court’s order was set aside, and the suit was allowed restoring the trial court’s judgment & decree.

5. Before us, the legal heirs of the defendant, the appellants, contended that they have been always in possession of the land, as admitted by the plaintiff. The suit was filed without any prayer for declaration and the injunction simpliciter ought not to have been granted. It was contended that by Ex. B1 agreement entered into by Rangaswamy Naidu, Govindarajan and the original defendant, there was a division of the properties in the year 1983 itself. The plaintiff was unable to produce any ocular or documentary evidence to establish possession. The plaintiff’s own admission was that the defendant was in possession of the property.

6. The learned Senior Counsel appearing for the respondent-plaintiff, however, would point out that there are two different properties, as has been noticed by the High Court, one purchased in the year 1934 and another in the year 1984. The house property is said to have been purchased in the year 1984 with which the plaintiff was not concerned in the suit. In fact, a specific pleading was made reserving her right to take action against the house property separately. The appellants as of now is concerned only with the property more fully described in the plaint which does not contain a house, is the contention.

7. We have gone through the suit in which clear statements are made as to the defendant having been inducted into the property as a tenant by the father. The father is said to have filed OS No. 895 of 1984 to obtain possession of the suit property and arrears of rent, which, after the death of the father, stood dismissed allegedly for reason of the defendant having agreed to pay the rent. Immediately, we have to notice that Annexure P7 dismissed OS No.895 of 1984 filed by Rangaswamy Naidu, after his death, substituting Govindarajan and the plaintiff as the legal heirs. The suit was dismissed for default without any observation of an agreement regarding payment of rent. It is also pertinent to observe that even at that stage a written statement was filed by the original defendant, Munuswamy contending that in the suit property, the defendant had put up a structure in which he was residing with his family. He claimed possession of the property as a co-owner and not as a tenant; which relationship was asserted to be not existing since there was no such tenancy created orally or on the strength of documents. The original plaintiff having died, the siblings who got impleaded as his legal heirs, filed an amended plaint again alleging tenancy and claiming the property as per the registered Will dated 30.09.1985. The substituted plaintiffs despite taking up a plea of the Will executed by the deceased father in the amended plaint, the proceedings were not continued and the suit stood dismissed for default.

8. It was after a few years that the present suit was instituted in the year 2003 wherein also the possession of the defendant was admitted, again on the contention of a tenancy arrangement. In the present suit also, the defendant took up a contention that it was a joint family property later set apart to his share.

9. More pertinent is the fact that the plaintiff in her evidence clearly stated that property covered by the Will is in the possession of Munuswamy and Govindrajan, her brothers. The total extent of the property even according to the plaintiff is 1.74% acres and her share is 87.25 cents. The property on the four sides of her share is stated to be in the hands of third parties; which cannot be correct since when half of the property is claimed, at least on one side the property bequeathed to Govindrajan should have been mentioned. In fact, even in evidence, it is repeated that in the suit property the father and Munuswamy, the defendant were staying in half portions of the house and Govindrajan was staying in the ancestral house. As of now, with respect to the suit property, it is contended that Munuswamy is enjoying the western portion and Govindrajan is enjoying the eastern portion of the house.

10. It is also significant that though the plaintiff did not have possession, she had not claimed recovery of possession. While asserting a Will and title on its strength, there should have been a declaration of title sought, especially when the contention of the defendant was that he came into the property as a co-owner and then occupies it with absolute rights, making valuable improvements. The defendant also did not seek to get a declaration on the basis of an arrangement entered into with the father and the other brother or seek a partition on the strength of a counter claim.

11. In the above circumstances, we cannot but find the ‘Will’ is proved but the right of the testator to bequeath the property is still under a cloud. Even if the title is established, there should have been a recovery of possession sought by the plaintiff. The ill-drafted plaint and the clear admissions made in the witness box ought to have restricted the trial court and the High Court from granting an injunction against the interference of peaceful enjoyment of the property, especially when the possession was admitted to be with the defendant, in the pleadings as also the oral evidence. The injunction against alienation is perfectly in order since the defendant too has not sought for a declaration of title.

12. The learned Senior Counsel for the plaintiff sought for agitating the cause afresh. We are of the opinion that since a stalemate is created; with the ownership not having been declared in favour of either of the parties, also considering the relationship, we reserve liberty to either of the parties to seek declaration of title and consequential possession or recovery of possession, if they desire, which proceedings will be instituted within a period of three months from today. If a fresh proceeding is initiated then the same would be considered afresh untrammelled by the findings in the present proceedings, which shall not govern the rights of the parties. However, we make it clear that no alienation shall be made by both parties or the subject property encumbered.

13. The appeal is disposed of with the above reservation of liberty.

14. Pending applications, if any, shall stand disposed of.

2025 INSC 1140

SUPREME COURT OF INDIA

DIVISION BENCH

SATHEESH V.K.

Vs.

THE FEDERAL BANK LTD.

( Before : Dipankar Datta and K.V. Viswanathan, JJ. )

Civil Appeal Nos.11752-11753 of 2025 [Arising Out of SLP(C) Nos.30056-30057 of 2024]

Decided on : 23-09-2025

A. Civil Procedure Code, 1908 (CPC) — Order 47 Rule 7(1) — Appeal against order refusing review — No appeal lies from an order refusing a review, as the original decree or order remains unchanged.

B. Constitution of India, 1950 — Article 136 — Special Leave Petition — Withdrawal of — Once a Special Leave Petition (SLP) is withdrawn without liberty to re-approach, a second SLP against the same order is not maintainable, even if a review petition is filed and dismissed subsequently.

C. Public Policy — End of Litigation — The principle that there should be an end to litigation applies when a party withdraws an SLP without liberty to re-approach and then attempts to challenge the same order again.

D. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) — Powers of Secured Creditor — A secured creditor can proceed under the SARFAESI Act for realization of dues if the borrower fails to comply with court-ordered payment installments.

JUDGMENT

Dipankar Datta, J. – Appellant, Satheesh V.K., is a borrower within the meaning of section 2(f) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002[1]. Undisputedly, the appellant obtained financial assistance from the respondent-Federal Bank, a secured creditor within the meaning of section 2(zd) of the SARFAESI Act, by creating equitable mortgage over properties situated in Kozhikode. However, the appellant having defaulted in his obligation to repay the loan, the respondent classified the loan account as ‘Non-Performing Asset’ (NPA) and initiated measures under section 13(4) of the SARFAESI Act.

[1] SARFAESI Act

2. Aggrieved by the action taken by the respondent, the appellant invoked the jurisdiction of the High Court of Kerala at Ernakulam under Article 226 of the Constitution by presenting a writ petition[2]. According to the respondent, the total outstanding amount was Rs.7,77,41,321/-. The order dated 1st October, 2024 passed by the High Court disposing of the writ petition required the appellant to pay Rs.2,00,00,000/- on or before 30th October, 2024 and the remaining amount along with future interest in 12 (twelve) equal monthly instalments. The first instalment was to be paid on or before 15th November, 2024 and the remaining eleven (11) instalments were to be paid on or before 15th day of each succeeding month. The impugned order further directed that in case of failure to make payment of Rs.2,00,00,000/- or any of the subsequent instalments, as directed, the respondent would be free to proceed against the appellant under the SARFAESI Act for realisation of the dues in accordance with law. Appellant was also granted liberty to approach the respondent for one time settlement after making payment of the initial sum of Rs.2,00,00,000/- on or before 30th October, 2024.

[2] Writ Petition (C) No.33280 of 2024

3. The order dated 1st October, 2024 was challenged by the appellant in a special leave petition[3] before this Court. Order dated 28th November, 2024 recorded on the said special leave petition by a coordinate Bench reads as follows:

[3] Special Leave Petition (C) No.28259/2024

ORDER

1. After arguing for some time and on our expressing reservation in entertaining the present petition, the learned senior counsel for the petitioner seeks permission to withdraw the present petition.

2. Permission to withdraw is granted.

3. The Special Leave Petition is dismissed as withdrawn.

4. Having been permitted to withdraw the special leave petition, the appellant next approached the High Court with a petition[4] seeking review of the order dated 1st October, 2024. Such petition came to be dismissed vide order dated 5th December, 2024.

5. Consequent upon such dismissal, these two civil appeals were presented by the appellant before this Court on 12th December, 2024. The appeal[5] registered prior in point of time is directed against the order dated 1st October, 2024 of disposal of the appellant’s writ petition, whereas the one[6] subsequently registered is directed against the dismissal of the review petition.

[4] RP No.1294 of 2024

[5] Civil Appeal No.11752/2025

[6] Civil Appeal No.11753/2025

6. The alacrity with which the appellant moved from court to court between 1st October, 2024 (date of disposal of his writ petition) and 12th December, 2024 (date of presenting the special leave petitions before this Court giving rise to these appeals) without showing semblance of an inclination to repay the dues of the respondent and to buy time by resorting to technicalities are certainly factors which we propose to bear in mind while deciding these appeals.

7. Mr. Aljo K. Joseph, learned counsel appearing for the respondent, has vehemently objected to maintainability of the appeals. He has referred to the aforesaid order dated 28th November, 2024 passed on the appellant’s previous special leave petition and contended that no liberty having been sought and/or granted by this Court to present a fresh special leave petition to lay a challenge to the order dated 1st October, 2024, the appellant has no right in law to approach this Court once again after withdrawing the initial challenge. Also, in view of Order XLVII Rule 7 (1) of the Code of Civil Procedure, 1908[7], there can be no appeal against an order refusing review.

[7] CPC

8. The objection to the maintainability of the appeal against the order dated 1st October, 2024 was sought to be countered by Mr. Menon, learned counsel for the appellant, by citing the decision of a coordinate Bench of this Court in S. Narahari and Others vs. S.R. Kumar and Others[8]. It was pointed out that a reference was made for constitution of a larger Bench to deliberate and adjudicate the issue as to whether a second special leave petition would be maintainable against an order which was previously challenged in a special leave petition but the challenge had either been withdrawn or spurned. Our attention was further drawn by Mr. Menon to orders dated 29th July, 2024 and 13th August, 2024 passed by another coordinate Bench of this Court [of which one of us (Dipankar Datta) was a member] in N.F. Railway Vending and Catering Contractors Association Lumding Division vs. Union of India & Ors.[9] where, noticing S. Narahari (supra), the special leave petitions were adjourned till such time the reference is decided.

[8] (2023) 7 SCC 740

[9] Special Leave Petition (C) Nos.17501-17502/2024

9. Apart from referring to the aforesaid decisions, Mr. Menon relied on a compilation of precedents starting from Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax, West Bengal[10]. Reliance was placed on paragraph 8 of Dhakeswari Cotton Mills Ltd. (supra) on the extent of powers conferred by Article 136 of the Constitution, reading as follows:

“8. … It is not possible to define with any precision the limitations on the exercise of the discretionary jurisdiction vested in this Court by the constitutional provision made in Article 136. The limitations, whatever they be, are implicit in the nature and character of the power itself. It being an exceptional and overriding power, naturally it has to be exercised sparingly and with caution and only in special and extraordinary situations. Beyond that it is not possible to fetter the exercise of this power by any set formula or rule. All that can be said is that the Constitution having trusted the wisdom and good sense of the Judges of this Court in this matter, that itself is a sufficient safeguard and guarantee that that power will only be used to advance the cause of justice, and that its exercise will be governed by well-established principles which govern the exercise of overriding constitutional powers. It is, however, plain that when the Court reaches the conclusion that a person has been dealt with arbitrarily or that a court or tribunal within the territory of India has not given a fair deal to a litigant, then no technical hurdles of any kind like the finality of finding of facts or otherwise can stand in the way of the exercise of this power because the whole intent and purpose of this Article is that it is the duty of this Court to see that injustice is not perpetuated or perpetrated by decisions of courts and tribunals because certain laws have made the decisions of these courts or tribunals final and conclusive. .”

[10] AIR 1955 SC 65

10. According to Mr. Menon, the power conferred by Article 136 of the Constitution of India is an extra-ordinary power and such power must be exercised to advance the cause of justice and not to thwart it.

11. Other decisions relied on by Mr. Menon are Patel Narshi Thakershi and Ors. v. Shri Pradyumansinghji Arjunsinghji[11], S. Nagaraj and Others v. State of Karnataka and Another[12], Lily Thomas and Others v. Union of India & Ors.[13], Kunhayammed and Others v. State of Kerala & Another[14], Ramnik Vallabhdas Madhvani and Others v. Taraben Pravinlal Madhvani[15], Union of India v. Amrit Lal Manchanda and Another[16], and Khoday Distilleries Limited (Now Known as Khoday India Limited) and Others v. Sri Mahadeshwara Sahakara Sakkare Karkhane Limited, Kollegal (Under Liquidation) Represented by the Liquidator[17].

[11] (1971) 3 SCC 844

[12] 1993 Supp (4) SCC 595

[13] (2000) 6 SCC 224

[14] (2000) 6 SCC 359

[15] (2004) 1 SCC 497

[16] (2004) 3 SCC 75

[17] (2019) 4 SCC 376

12. Of these decisions, Kunhayammed (supra) and Khoday Distilleries Limited (supra) have relevance and, therefore, we propose to consider the same in some detail for deciding the question arising before us at a later part of this judgment. The other decisions not being directly related to the point under consideration are not separately considered. Suffice to record, these decisions lay down general principles of law, inter alia, of what is a review, that power to review is not an inherent power and has to be statutorily conferred, whether res judicata is applicable in a case where there is inherent lack of jurisdiction, how to read precedents, and that law has to bend before justice in given circumstances.

13. On merits, Mr. Menon referred to the decision in M/s Pro Knits v. The Board of Directors of Canara Bank & Ors.[18] and Shri Shri Swami Samarth Construction & Finance Solution and Another v. Board of Directors of NKGST Co-op. Bank Ltd and Others[19] to contend that the appellant’s company being an unit which is an MSME, it is entitled to the benefits flowing from Notification dated 29th May, 2015 issued by the Central Government in terms of Section 9 of the Micro Small and Medium Enterprises Development Act, 2006 and that the respondent had acted illegally in not extending the benefit of such notification to the appellant.

[18] (2024) 10 SCC 292

[19] 2025 SCC OnLine SC 1566

14. Since the question of examining the merits of the appellant’s claim would arise if the objection to the maintainability were overcome, we proceed to examine the maintainability aspect first.

15. In course of hearing, we had invited Mr. Menon’s attention to the order of recent origin dated 1st September, 2025 of another coordinate Bench in Vasantalata Kom Vimalanand Mirjankar Rep. by G.P.A. Holder vs. Deepa Mavinkurve & Ors.[20]. Mr. Menon sought to distinguish Vasantalata (supra) by referring to the opening sentence of paragraph 7. It was submitted that this Court in Vasantalata (supra) had dealt with a case where a special leave petition was dismissed and not withdrawn, as in the present case; therefore, Vasantalata (supra) has no application here.

[20] Special Leave Petition (C) Diary No.36933/2025

16. The question we are tasked to decide, though of frequent occurrence now-a-days, is not res integra. It is, whether a special leave petition (second in the series) would be maintainable against a judgment and order which was earlier challenged before this Court but such challenge turned out to be abortive because the special leave petition before this Court is either (i) withdrawn unconditionally, or (ii) dismissed on merits by a brief order not containing reasons, or (iii) withdrawn with liberty to apply for review but without the liberty to approach this Court once again, should the review too fail.

17. No doubt, the co-ordinate Bench in S. Narahari (supra) has referred the issue to a larger Bench for consideration. The facts therein may be noted now. The coordinate Bench in S. Narahari (supra) was seized of the question as to whether, upon dismissal of a special leave petition against the parent order as withdrawn with liberty to file a review before the high court but without liberty to approach this Court again against the parent order should the review fail, a fresh special leave petition filed against both the parent order and the review rejection order would be maintainable. The Bench pondered whether liberty granted by this Court to approach the high court in review automatically places the said matter in the “escalation matrix”, and makes the remedy of a special leave petition available again. The Bench traced the first line of cases, Vinod Kapoor v. State of Goa[21] and Sandhya Educational Society v. Union of India[22] which ruled that when no liberty has been granted to approach the Supreme Court once again, a subsequent special leave petition is not maintainable. This was contrasted with the decision rendered in Khoday Distilleries (supra) wherein after placing reliance on Kunhayammed (supra), a three-Judge Bench came to the conclusion that even after dismissal of a special leave petition, a review before the high court is maintainable.

[21] (2012) 12 SCC 383

[22] (2014) 7 SCC 701

18. The Bench in S. Narahari (supra) while acknowledging that the question in the matter before it was different, was of the view that the logic employed by the larger Bench in Khoday Distilleries (supra) caused a crack in the reasoning of the first line of cases and came to the conclusion that Khoday Distilleries (supra) essentially ruled that the doctrine of merger does not apply when a special leave petition is dismissed by way of a non-speaking order. If indeed that be so, the Bench in S. Narahari (supra) was concerned that such dismissal by way of a non-speaking order is not to be considered as law declared under Article 141 of the Constitution and then the same cannot be considered res judicata; therefore, in every such dismissal, the remedy of filing a special leave petition would still persist. Further, if a review is allowed to be filed after a special leave petition is dismissed, then a fresh special leave petition cannot be barred arbitrarily. Hence, the matter was referred to a larger Bench to put a quietus to the issue.

19. Having noticed S. Narahari (supra), a stark dissimilarity in facts is discernible. There, the unsuccessful petitioner at the time of dismissal of the special leave petition as withdrawn had prayed for and was granted leave to apply for a review. Upon the review being dismissed, the parent order was challenged once again. Before us, there is something very adverse to the appellant. He having sensed that the co-ordinate Bench was not inclined to entertain the special leave petition, did not invite an order of dismissal thereof on merits but went away content with permission to withdraw. Neither permission was sought to apply for review nor was any window kept open by this Court to permit the appellant to approach it once again mounting a challenge to the same order. This is a plain and simple case where the law laid down in the previous century by a co-ordinate Bench in its decision in Upadhyay & Co. v. State of U.P. and Others[23] would squarely apply.

[23] (1999) 1 SCC 81

20. As noted by the co-ordinate Bench in its order dated 13th August, 2024 in N.F. Railway Vending and Catering Contractors Association (supra), relied on by Mr. Menon, the decision in Upadhyay & Co. (supra) was not placed for consideration of the coordinate Bench in S. Narahari (supra).

21. In Upadhyay & Co. (supra), it was held thus:

“9. In the meanwhile, the petitioner challenged the order of the Allahabad High Court dated 3-5-1996 by filing SLP (C) No. 12673 of 1996 in this Court. But for reasons better known to the petitioner he withdrew the SLP on 9-7-1996. Thereafter, he filed an application before the High Court for clarification of the order dated 3-5-1996, but the Division Bench did not find anything to be clarified about that order and hence dismissed the petition on 10-10-1997.

10. The present special leave petitions are filed against the two orders of the High Court, one dated 3-5-1996 and the other dated 10-9-1997.

11. We made a recapitulation of the events as above for the purpose of showing that the petitioner has absolutely no case in the present SLPs. He cannot, at any rate, now challenge the order of the High Court dated 3-5-1996 over again having withdrawn the SLP which he filed in challenge of the same order. It is not a permissible practice to challenge the same order over again after withdrawing the special leave petition without obtaining permission of the court for withdrawing it with liberty to move for special leave again subsequently.

12. The above principle has been incorporated as a rule in the realm of suits. Order 23 Rule 1 of the Code of Civil Procedure deals with withdrawal of suit or abandonment of part of the claim. Sub-rule (3) says that the court may in certain contingencies grant permission to withdraw from a suit with liberty to institute a fresh suit in respect of the subject-matter of such suit. Sub-rule (4) reads thus:

‘1. (4) Where the plaintiff-

(a) abandons any suit or part of a claim under sub-rule (1), or

(b) withdraws from a suit or part of a claim without the permission referred to in sub-rule (3), he shall be liable for such costs as the court may award and shall be precluded from instituting any fresh suit in respect of such subject-matter or such part of the claim.’

13. The aforesaid ban for filing a fresh suit is based on public policy. This Court has made the said rule of public policy applicable to jurisdiction under Article 226 of the Constitution [Sarguja Transport Service v. STAT : (1987) 1 SCC 5]. The reasoning for adopting it in writ jurisdiction is that very often it happens, when the petitioner or his counsel finds that the court is not likely to pass an order admitting the writ petition after it is heard for some time, that a request is made by the petitioner or his counsel to permit him to withdraw it without seeking permission to institute a fresh writ petition. A court which is unwilling to admit the petition would not ordinarily grant liberty to file a fresh petition while it may just agree to permit withdrawal of the petition. When once a writ petition filed in a High Court is withdrawn by the party concerned, he is precluded from filing an appeal against the order passed in the writ petition because he cannot be considered as a party aggrieved by the order passed by the High Court. If so, he cannot file a fresh petition for the same cause once again. The following observations of E.S. Venkataramiah, J. (as the learned Chief Justice then was) are to be quoted here: ‘[W]e are of the view that the principle underlying Rule 1 of Order 23 of the Code should be extended in the interests of administration of justice to cases of withdrawal of writ petition also, not on the ground of res judicata but on the ground of public policy as explained above. It would also discourage the litigant from indulging in bench-hunting tactics. In any event there is no justifiable reason in such a case to permit a petitioner to invoke the extraordinary jurisdiction of the High Court under Article 226 of the Constitution once again. While the withdrawal of a writ petition filed in the High Court without permission to file a fresh writ petition may not bar other remedies like a suit or a petition under Article 32 of the Constitution of India since such withdrawal does not amount to res judicata, the remedy under Article 226 of the Constitution of India should be deemed to have been abandoned by the petitioner in respect of the cause of action relied on in the writ petition when he withdraws it without such permission.’

14. ***

15. We have no doubt that the above rule of public policy, for the very same reasoning, should apply to special leave petitions filed under Article 136 of the Constitution also. Even otherwise, the order passed by the Division Bench of the High Court on 3-5-1998 does not warrant interference on merits as the learned Judges of the High Court have taken into account all the relevant facts and come to the correct conclusion.” (emphasis ours)

22. Upadhyay & Co. (supra), which precedes Kunhayammed (supra) in point of time, is still the law holding the field declaring in no certain terms that the principle flowing from Order XXIII Rule 1 of the CPC is also applicable to special leave petitions presented before this Court. Reading Upadhyay & Co. (supra) together with Sarguja Transport Service (supra), which had the occasion to deal with a subsequently filed writ petition under Article 226 of the Constitution of India after unconditional withdrawal of the first writ petition under the same article, the position in law seems to be this – a second special leave petition would not be maintainable at the instance of a party, who elects not to proceed with the challenge laid by him in an earlier special leave petition and withdraws such petition without obtaining leave to file a fresh special leave petition; if such party applies for a review before the court from whose order the special leave petition was initially carried and the review fails, then he can neither challenge the order rejecting the review nor the order of which review was sought.

23. That no appeal lies from an order rejecting a petition for review is clear from the plain language of Order XLVII Rule 7(1), CPC. We need not burden this judgment by referring to any authority on this point.

24. However, the principle underlying Order XLVII Rule 7(1), CPC may be understood. Whenever a party aggrieved by a decree or order seeks a review thereof based on parameters indicated in Section 114 read with Order XLVII, CPC and the application ultimately fails, the decree or order under review does not suffer any change. It remains intact. In such an eventuality, there is no merger of the decree or order under review in the order of rejection of the review because such rejection does not bring about any alteration or modification of the decree or order; rather, it results in an affirmance of the decree or order. Since there is no question of any merger, the party aggrieved by the rejection of the review petition has to challenge the decree or order, as the case may be, and not the order of rejection of the review petition. On the contrary, if the petition for review is allowed and the suit or proceedings is placed for rehearing, Rule 7(1) permits the party aggrieved to immediately object to the order allowing the review or in an appeal from the decree or order finally passed or made in the suit, i.e., after rehearing of the matter in dispute.

25. It is now time to consider the decisions relied upon by Mr. Menon.

26. The passage from the decision in Dhakeswari Cotton Mills Ltd. (supra) referred to by Mr. Menon has no application on facts and in the circumstances of the present case. We are inclined to the view that the nature of power exercisable by this Court under Article 136, as elaborately laid down there, would apply in the first round when a judgment and order is challenged and not when the challenge to the same judgment and order is withdrawn in the first round and a second bite at the cherry is attempted without having obtained the permission of the Court to re-approach it.

27. Reliance placed by Mr. Menon on the decisions in Kunhayammed (supra) and Khoday Distilleries Limited (supra) also do not aid the appellant’s cause for the reasons that follow.

28. In Kunhayammed (supra), the facts were these. After the special leave petition of the State of Kerala which was directed against an appellate judgment and order of the High Court dated 17th December, 1982 was dismissed on 18th July, 1983 by a single line order[24], the State had invoked the review jurisdiction of the High Court in January, 1982 seeking review of the said judgment and order dated 17th December, 1982. A preliminary objection to the maintainability of the review petition was raised before the High Court, which came to be overruled by an order dated 14th December, 1995. The said order also directed the review petition to be posted for hearing on merits. The order dated 14th December, 1995 overruling the preliminary objection was carried to this Court in a special leave petition, on which leave was granted on 16th September, 1996. By an order dated 14th March, 2000, the matter was referred to a three-Judge Bench for decision.

[24] “Special Leave Petition is dismissed on merits.”

29. Kunhayammed (supra) is considered an authority on the doctrine of merger. However, on the facts before the three-Judge Bench, it was held that since the judgment and order of the High Court dated 17th December, 1982 did not merge in the single line unreasoned order of dismissal of the special leave petition (dated 18th July, 1983), the petition for review was maintainable.

30. Turning to Khoday Distilleries (supra), two appeals were under consideration. It is found that in the lead appeal, a petition for review of the judgment and order dated 12th November, 2008 was not entertained by the High Court of Karnataka by its order dated 9th September, 2011 on the ground that a special leave petition against the said judgment and order dated 12th November, 2008 stood dismissed by a single line order[25] of this Court dated 4th December, 2009. The question of law arising for decision was noted in paragraph 8, reading as follows:

“8. The question of law which needs to be determined in the aforesaid circumstances is as to whether the review petition is maintainable before the High Court seeking review of a judgment against which the special leave petition has already been dismissed by this Court.”

[25] “Delay condoned. Special leave petition is dismissed.”

31. After extensively referring to and/or relying on Kunhayammed (supra), the three-Judge Bench summed up the legal position in paragraph 26 as under:

“26. From a cumulative reading of the various judgments, we sum up the legal position as under:

26.1. The conclusions rendered by the three-Judge Bench of this Court in Kunhayammed and summed up in para 44 are affirmed and reiterated.

26.2. We reiterate the conclusions relevant for these cases as under : (Kunhayammed case, SCC p. 384)

‘(iv) An order refusing special leave to appeal may be a nonspeaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed.

(v) If the order refusing leave to appeal is a speaking order i.e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.

(vi) Once leave to appeal has been granted and appellate jurisdiction of the Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation.

(vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court the jurisdiction of the High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of Order 47 Rule 1 CPC.’

26.3. Once we hold that the law laid down in Kunhayammed is to be followed, it will not make any difference whether the review petition was filed before the filing of special leave petition or was filed after the dismissal of special leave petition. Such a situation is covered in para 37 of Kunhayammed case.

27. Applying the aforesaid principles, the outcome of these appeals would be as under.

Civil appeal arising out of Special Leave Petition (Civil) No. 490 of 2012

28. In the instant case, since special leave petition was dismissed in limine without giving any reasons, the review petition filed by the appellant in the High Court would be maintainable and should have been decided on merits. Order dated 12-11-2008 passed by the High Court is accordingly set aside and matter is remanded back to the High Court for deciding the review petition on merits. The civil appeal is disposed of accordingly.”

32. In Khoday Distilleries Limited (supra), the order under appeal was clearly in the teeth of the ratio laid down in Kunhayammed (supra) and it was only a matter of time for such erroneous order to be set aside.

33. Since the facts in Kunhayammed (supra) and Khoday Distilleries Limited (supra) were different, there is evidently no consideration of the decision in Upadhyay & Co. (supra) which clinches the issue and assists us in drawing the conclusion we do hereunder.

34. Insofar as the order dated 13th August, 2024 passed in N.F. Railway Vending and Catering Contractors Association Lumding Division (supra) is concerned, the order records developments having taken place subsequent to the order dated 29th July, 2024 which, in the opinion of the Bench, required a further consideration. The order dated 13th August, 2024, for such reason, recalled the earlier order dated 29th July, 2024 and issued notice on the special leave petition as well as on the application for stay together with interim protection. The order dated 13th August, 2024 recalled the order dated 29th July, 2024 whereby hearing was adjourned sine die awaiting the reference made in S. Narahari (supra). No assistance can, thus, be drawn by the appellant from such order.

35. We have no doubt that entertaining a special leave petition in a case of the present nature would be contrary to public policy and can even tantamount to sitting in appeal over the previous order of this Court which has attained finality. The maxim interest reipublicae ut sit finis litium (it is for the public good that there be an end to litigation) would apply in all fours when it is found that proceedings challenging an order were not carried forward by withdrawing the special leave petition and the litigant has returned to the same court after some time mounting a challenge to the self-same order which was earlier under challenge and such challenge had not been pursued. This is a course of action which cannot be justified either in principle or precept.

36. For the foregoing reasons, the preliminary objections to the maintainability of the appeals raised by the respondent succeed.

37. The civil appeals are, consequently, dismissed. Connected applications, if any, stand closed.

38. If so advised, the appellant may pursue his remedy before the appropriate forum in accordance with law.

2025 INSC 1140

SUPREME COURT OF INDIA

DIVISION BENCH

SATHEESH V.K.

Vs.

THE FEDERAL BANK LTD.

( Before : Dipankar Datta and K.V. Viswanathan, JJ. )

Civil Appeal Nos.11752-11753 of 2025 [Arising Out of SLP(C) Nos.30056-30057 of 2024]

Decided on : 23-09-2025

A. Civil Procedure Code, 1908 (CPC) — Order 47 Rule 7(1) — Appeal against order refusing review — No appeal lies from an order refusing a review, as the original decree or order remains unchanged.

B. Constitution of India, 1950 — Article 136 — Special Leave Petition — Withdrawal of — Once a Special Leave Petition (SLP) is withdrawn without liberty to re-approach, a second SLP against the same order is not maintainable, even if a review petition is filed and dismissed subsequently.

C. Public Policy — End of Litigation — The principle that there should be an end to litigation applies when a party withdraws an SLP without liberty to re-approach and then attempts to challenge the same order again.

D. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) — Powers of Secured Creditor — A secured creditor can proceed under the SARFAESI Act for realization of dues if the borrower fails to comply with court-ordered payment installments.

JUDGMENT

Dipankar Datta, J. – Appellant, Satheesh V.K., is a borrower within the meaning of section 2(f) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002[1]. Undisputedly, the appellant obtained financial assistance from the respondent-Federal Bank, a secured creditor within the meaning of section 2(zd) of the SARFAESI Act, by creating equitable mortgage over properties situated in Kozhikode. However, the appellant having defaulted in his obligation to repay the loan, the respondent classified the loan account as ‘Non-Performing Asset’ (NPA) and initiated measures under section 13(4) of the SARFAESI Act.

[1] SARFAESI Act

2. Aggrieved by the action taken by the respondent, the appellant invoked the jurisdiction of the High Court of Kerala at Ernakulam under Article 226 of the Constitution by presenting a writ petition[2]. According to the respondent, the total outstanding amount was Rs.7,77,41,321/-. The order dated 1st October, 2024 passed by the High Court disposing of the writ petition required the appellant to pay Rs.2,00,00,000/- on or before 30th October, 2024 and the remaining amount along with future interest in 12 (twelve) equal monthly instalments. The first instalment was to be paid on or before 15th November, 2024 and the remaining eleven (11) instalments were to be paid on or before 15th day of each succeeding month. The impugned order further directed that in case of failure to make payment of Rs.2,00,00,000/- or any of the subsequent instalments, as directed, the respondent would be free to proceed against the appellant under the SARFAESI Act for realisation of the dues in accordance with law. Appellant was also granted liberty to approach the respondent for one time settlement after making payment of the initial sum of Rs.2,00,00,000/- on or before 30th October, 2024.

[2] Writ Petition (C) No.33280 of 2024

3. The order dated 1st October, 2024 was challenged by the appellant in a special leave petition[3] before this Court. Order dated 28th November, 2024 recorded on the said special leave petition by a coordinate Bench reads as follows:

[3] Special Leave Petition (C) No.28259/2024

ORDER

1. After arguing for some time and on our expressing reservation in entertaining the present petition, the learned senior counsel for the petitioner seeks permission to withdraw the present petition.

2. Permission to withdraw is granted.

3. The Special Leave Petition is dismissed as withdrawn.

4. Having been permitted to withdraw the special leave petition, the appellant next approached the High Court with a petition[4] seeking review of the order dated 1st October, 2024. Such petition came to be dismissed vide order dated 5th December, 2024.

5. Consequent upon such dismissal, these two civil appeals were presented by the appellant before this Court on 12th December, 2024. The appeal[5] registered prior in point of time is directed against the order dated 1st October, 2024 of disposal of the appellant’s writ petition, whereas the one[6] subsequently registered is directed against the dismissal of the review petition.

[4] RP No.1294 of 2024

[5] Civil Appeal No.11752/2025

[6] Civil Appeal No.11753/2025

6. The alacrity with which the appellant moved from court to court between 1st October, 2024 (date of disposal of his writ petition) and 12th December, 2024 (date of presenting the special leave petitions before this Court giving rise to these appeals) without showing semblance of an inclination to repay the dues of the respondent and to buy time by resorting to technicalities are certainly factors which we propose to bear in mind while deciding these appeals.

7. Mr. Aljo K. Joseph, learned counsel appearing for the respondent, has vehemently objected to maintainability of the appeals. He has referred to the aforesaid order dated 28th November, 2024 passed on the appellant’s previous special leave petition and contended that no liberty having been sought and/or granted by this Court to present a fresh special leave petition to lay a challenge to the order dated 1st October, 2024, the appellant has no right in law to approach this Court once again after withdrawing the initial challenge. Also, in view of Order XLVII Rule 7 (1) of the Code of Civil Procedure, 1908[7], there can be no appeal against an order refusing review.

[7] CPC

8. The objection to the maintainability of the appeal against the order dated 1st October, 2024 was sought to be countered by Mr. Menon, learned counsel for the appellant, by citing the decision of a coordinate Bench of this Court in S. Narahari and Others vs. S.R. Kumar and Others[8]. It was pointed out that a reference was made for constitution of a larger Bench to deliberate and adjudicate the issue as to whether a second special leave petition would be maintainable against an order which was previously challenged in a special leave petition but the challenge had either been withdrawn or spurned. Our attention was further drawn by Mr. Menon to orders dated 29th July, 2024 and 13th August, 2024 passed by another coordinate Bench of this Court [of which one of us (Dipankar Datta) was a member] in N.F. Railway Vending and Catering Contractors Association Lumding Division vs. Union of India & Ors.[9] where, noticing S. Narahari (supra), the special leave petitions were adjourned till such time the reference is decided.

[8] (2023) 7 SCC 740

[9] Special Leave Petition (C) Nos.17501-17502/2024

9. Apart from referring to the aforesaid decisions, Mr. Menon relied on a compilation of precedents starting from Dhakeswari Cotton Mills Ltd. v. Commissioner of Income Tax, West Bengal[10]. Reliance was placed on paragraph 8 of Dhakeswari Cotton Mills Ltd. (supra) on the extent of powers conferred by Article 136 of the Constitution, reading as follows:

“8. … It is not possible to define with any precision the limitations on the exercise of the discretionary jurisdiction vested in this Court by the constitutional provision made in Article 136. The limitations, whatever they be, are implicit in the nature and character of the power itself. It being an exceptional and overriding power, naturally it has to be exercised sparingly and with caution and only in special and extraordinary situations. Beyond that it is not possible to fetter the exercise of this power by any set formula or rule. All that can be said is that the Constitution having trusted the wisdom and good sense of the Judges of this Court in this matter, that itself is a sufficient safeguard and guarantee that that power will only be used to advance the cause of justice, and that its exercise will be governed by well-established principles which govern the exercise of overriding constitutional powers. It is, however, plain that when the Court reaches the conclusion that a person has been dealt with arbitrarily or that a court or tribunal within the territory of India has not given a fair deal to a litigant, then no technical hurdles of any kind like the finality of finding of facts or otherwise can stand in the way of the exercise of this power because the whole intent and purpose of this Article is that it is the duty of this Court to see that injustice is not perpetuated or perpetrated by decisions of courts and tribunals because certain laws have made the decisions of these courts or tribunals final and conclusive. .”

[10] AIR 1955 SC 65

10. According to Mr. Menon, the power conferred by Article 136 of the Constitution of India is an extra-ordinary power and such power must be exercised to advance the cause of justice and not to thwart it.

11. Other decisions relied on by Mr. Menon are Patel Narshi Thakershi and Ors. v. Shri Pradyumansinghji Arjunsinghji[11], S. Nagaraj and Others v. State of Karnataka and Another[12], Lily Thomas and Others v. Union of India & Ors.[13], Kunhayammed and Others v. State of Kerala & Another[14], Ramnik Vallabhdas Madhvani and Others v. Taraben Pravinlal Madhvani[15], Union of India v. Amrit Lal Manchanda and Another[16], and Khoday Distilleries Limited (Now Known as Khoday India Limited) and Others v. Sri Mahadeshwara Sahakara Sakkare Karkhane Limited, Kollegal (Under Liquidation) Represented by the Liquidator[17].

[11] (1971) 3 SCC 844

[12] 1993 Supp (4) SCC 595

[13] (2000) 6 SCC 224

[14] (2000) 6 SCC 359

[15] (2004) 1 SCC 497

[16] (2004) 3 SCC 75

[17] (2019) 4 SCC 376

12. Of these decisions, Kunhayammed (supra) and Khoday Distilleries Limited (supra) have relevance and, therefore, we propose to consider the same in some detail for deciding the question arising before us at a later part of this judgment. The other decisions not being directly related to the point under consideration are not separately considered. Suffice to record, these decisions lay down general principles of law, inter alia, of what is a review, that power to review is not an inherent power and has to be statutorily conferred, whether res judicata is applicable in a case where there is inherent lack of jurisdiction, how to read precedents, and that law has to bend before justice in given circumstances.

13. On merits, Mr. Menon referred to the decision in M/s Pro Knits v. The Board of Directors of Canara Bank & Ors.[18] and Shri Shri Swami Samarth Construction & Finance Solution and Another v. Board of Directors of NKGST Co-op. Bank Ltd and Others[19] to contend that the appellant’s company being an unit which is an MSME, it is entitled to the benefits flowing from Notification dated 29th May, 2015 issued by the Central Government in terms of Section 9 of the Micro Small and Medium Enterprises Development Act, 2006 and that the respondent had acted illegally in not extending the benefit of such notification to the appellant.

[18] (2024) 10 SCC 292

[19] 2025 SCC OnLine SC 1566

14. Since the question of examining the merits of the appellant’s claim would arise if the objection to the maintainability were overcome, we proceed to examine the maintainability aspect first.

15. In course of hearing, we had invited Mr. Menon’s attention to the order of recent origin dated 1st September, 2025 of another coordinate Bench in Vasantalata Kom Vimalanand Mirjankar Rep. by G.P.A. Holder vs. Deepa Mavinkurve & Ors.[20]. Mr. Menon sought to distinguish Vasantalata (supra) by referring to the opening sentence of paragraph 7. It was submitted that this Court in Vasantalata (supra) had dealt with a case where a special leave petition was dismissed and not withdrawn, as in the present case; therefore, Vasantalata (supra) has no application here.

[20] Special Leave Petition (C) Diary No.36933/2025

16. The question we are tasked to decide, though of frequent occurrence now-a-days, is not res integra. It is, whether a special leave petition (second in the series) would be maintainable against a judgment and order which was earlier challenged before this Court but such challenge turned out to be abortive because the special leave petition before this Court is either (i) withdrawn unconditionally, or (ii) dismissed on merits by a brief order not containing reasons, or (iii) withdrawn with liberty to apply for review but without the liberty to approach this Court once again, should the review too fail.

17. No doubt, the co-ordinate Bench in S. Narahari (supra) has referred the issue to a larger Bench for consideration. The facts therein may be noted now. The coordinate Bench in S. Narahari (supra) was seized of the question as to whether, upon dismissal of a special leave petition against the parent order as withdrawn with liberty to file a review before the high court but without liberty to approach this Court again against the parent order should the review fail, a fresh special leave petition filed against both the parent order and the review rejection order would be maintainable. The Bench pondered whether liberty granted by this Court to approach the high court in review automatically places the said matter in the “escalation matrix”, and makes the remedy of a special leave petition available again. The Bench traced the first line of cases, Vinod Kapoor v. State of Goa[21] and Sandhya Educational Society v. Union of India[22] which ruled that when no liberty has been granted to approach the Supreme Court once again, a subsequent special leave petition is not maintainable. This was contrasted with the decision rendered in Khoday Distilleries (supra) wherein after placing reliance on Kunhayammed (supra), a three-Judge Bench came to the conclusion that even after dismissal of a special leave petition, a review before the high court is maintainable.

[21] (2012) 12 SCC 383

[22] (2014) 7 SCC 701

18. The Bench in S. Narahari (supra) while acknowledging that the question in the matter before it was different, was of the view that the logic employed by the larger Bench in Khoday Distilleries (supra) caused a crack in the reasoning of the first line of cases and came to the conclusion that Khoday Distilleries (supra) essentially ruled that the doctrine of merger does not apply when a special leave petition is dismissed by way of a non-speaking order. If indeed that be so, the Bench in S. Narahari (supra) was concerned that such dismissal by way of a non-speaking order is not to be considered as law declared under Article 141 of the Constitution and then the same cannot be considered res judicata; therefore, in every such dismissal, the remedy of filing a special leave petition would still persist. Further, if a review is allowed to be filed after a special leave petition is dismissed, then a fresh special leave petition cannot be barred arbitrarily. Hence, the matter was referred to a larger Bench to put a quietus to the issue.

19. Having noticed S. Narahari (supra), a stark dissimilarity in facts is discernible. There, the unsuccessful petitioner at the time of dismissal of the special leave petition as withdrawn had prayed for and was granted leave to apply for a review. Upon the review being dismissed, the parent order was challenged once again. Before us, there is something very adverse to the appellant. He having sensed that the co-ordinate Bench was not inclined to entertain the special leave petition, did not invite an order of dismissal thereof on merits but went away content with permission to withdraw. Neither permission was sought to apply for review nor was any window kept open by this Court to permit the appellant to approach it once again mounting a challenge to the same order. This is a plain and simple case where the law laid down in the previous century by a co-ordinate Bench in its decision in Upadhyay & Co. v. State of U.P. and Others[23] would squarely apply.

[23] (1999) 1 SCC 81

20. As noted by the co-ordinate Bench in its order dated 13th August, 2024 in N.F. Railway Vending and Catering Contractors Association (supra), relied on by Mr. Menon, the decision in Upadhyay & Co. (supra) was not placed for consideration of the coordinate Bench in S. Narahari (supra).

21. In Upadhyay & Co. (supra), it was held thus:

“9. In the meanwhile, the petitioner challenged the order of the Allahabad High Court dated 3-5-1996 by filing SLP (C) No. 12673 of 1996 in this Court. But for reasons better known to the petitioner he withdrew the SLP on 9-7-1996. Thereafter, he filed an application before the High Court for clarification of the order dated 3-5-1996, but the Division Bench did not find anything to be clarified about that order and hence dismissed the petition on 10-10-1997.

10. The present special leave petitions are filed against the two orders of the High Court, one dated 3-5-1996 and the other dated 10-9-1997.

11. We made a recapitulation of the events as above for the purpose of showing that the petitioner has absolutely no case in the present SLPs. He cannot, at any rate, now challenge the order of the High Court dated 3-5-1996 over again having withdrawn the SLP which he filed in challenge of the same order. It is not a permissible practice to challenge the same order over again after withdrawing the special leave petition without obtaining permission of the court for withdrawing it with liberty to move for special leave again subsequently.

12. The above principle has been incorporated as a rule in the realm of suits. Order 23 Rule 1 of the Code of Civil Procedure deals with withdrawal of suit or abandonment of part of the claim. Sub-rule (3) says that the court may in certain contingencies grant permission to withdraw from a suit with liberty to institute a fresh suit in respect of the subject-matter of such suit. Sub-rule (4) reads thus:

‘1. (4) Where the plaintiff-

(a) abandons any suit or part of a claim under sub-rule (1), or

(b) withdraws from a suit or part of a claim without the permission referred to in sub-rule (3), he shall be liable for such costs as the court may award and shall be precluded from instituting any fresh suit in respect of such subject-matter or such part of the claim.’

13. The aforesaid ban for filing a fresh suit is based on public policy. This Court has made the said rule of public policy applicable to jurisdiction under Article 226 of the Constitution [Sarguja Transport Service v. STAT : (1987) 1 SCC 5]. The reasoning for adopting it in writ jurisdiction is that very often it happens, when the petitioner or his counsel finds that the court is not likely to pass an order admitting the writ petition after it is heard for some time, that a request is made by the petitioner or his counsel to permit him to withdraw it without seeking permission to institute a fresh writ petition. A court which is unwilling to admit the petition would not ordinarily grant liberty to file a fresh petition while it may just agree to permit withdrawal of the petition. When once a writ petition filed in a High Court is withdrawn by the party concerned, he is precluded from filing an appeal against the order passed in the writ petition because he cannot be considered as a party aggrieved by the order passed by the High Court. If so, he cannot file a fresh petition for the same cause once again. The following observations of E.S. Venkataramiah, J. (as the learned Chief Justice then was) are to be quoted here: ‘[W]e are of the view that the principle underlying Rule 1 of Order 23 of the Code should be extended in the interests of administration of justice to cases of withdrawal of writ petition also, not on the ground of res judicata but on the ground of public policy as explained above. It would also discourage the litigant from indulging in bench-hunting tactics. In any event there is no justifiable reason in such a case to permit a petitioner to invoke the extraordinary jurisdiction of the High Court under Article 226 of the Constitution once again. While the withdrawal of a writ petition filed in the High Court without permission to file a fresh writ petition may not bar other remedies like a suit or a petition under Article 32 of the Constitution of India since such withdrawal does not amount to res judicata, the remedy under Article 226 of the Constitution of India should be deemed to have been abandoned by the petitioner in respect of the cause of action relied on in the writ petition when he withdraws it without such permission.’

14. ***

15. We have no doubt that the above rule of public policy, for the very same reasoning, should apply to special leave petitions filed under Article 136 of the Constitution also. Even otherwise, the order passed by the Division Bench of the High Court on 3-5-1998 does not warrant interference on merits as the learned Judges of the High Court have taken into account all the relevant facts and come to the correct conclusion.” (emphasis ours)

22. Upadhyay & Co. (supra), which precedes Kunhayammed (supra) in point of time, is still the law holding the field declaring in no certain terms that the principle flowing from Order XXIII Rule 1 of the CPC is also applicable to special leave petitions presented before this Court. Reading Upadhyay & Co. (supra) together with Sarguja Transport Service (supra), which had the occasion to deal with a subsequently filed writ petition under Article 226 of the Constitution of India after unconditional withdrawal of the first writ petition under the same article, the position in law seems to be this – a second special leave petition would not be maintainable at the instance of a party, who elects not to proceed with the challenge laid by him in an earlier special leave petition and withdraws such petition without obtaining leave to file a fresh special leave petition; if such party applies for a review before the court from whose order the special leave petition was initially carried and the review fails, then he can neither challenge the order rejecting the review nor the order of which review was sought.

23. That no appeal lies from an order rejecting a petition for review is clear from the plain language of Order XLVII Rule 7(1), CPC. We need not burden this judgment by referring to any authority on this point.

24. However, the principle underlying Order XLVII Rule 7(1), CPC may be understood. Whenever a party aggrieved by a decree or order seeks a review thereof based on parameters indicated in Section 114 read with Order XLVII, CPC and the application ultimately fails, the decree or order under review does not suffer any change. It remains intact. In such an eventuality, there is no merger of the decree or order under review in the order of rejection of the review because such rejection does not bring about any alteration or modification of the decree or order; rather, it results in an affirmance of the decree or order. Since there is no question of any merger, the party aggrieved by the rejection of the review petition has to challenge the decree or order, as the case may be, and not the order of rejection of the review petition. On the contrary, if the petition for review is allowed and the suit or proceedings is placed for rehearing, Rule 7(1) permits the party aggrieved to immediately object to the order allowing the review or in an appeal from the decree or order finally passed or made in the suit, i.e., after rehearing of the matter in dispute.

25. It is now time to consider the decisions relied upon by Mr. Menon.

26. The passage from the decision in Dhakeswari Cotton Mills Ltd. (supra) referred to by Mr. Menon has no application on facts and in the circumstances of the present case. We are inclined to the view that the nature of power exercisable by this Court under Article 136, as elaborately laid down there, would apply in the first round when a judgment and order is challenged and not when the challenge to the same judgment and order is withdrawn in the first round and a second bite at the cherry is attempted without having obtained the permission of the Court to re-approach it.

27. Reliance placed by Mr. Menon on the decisions in Kunhayammed (supra) and Khoday Distilleries Limited (supra) also do not aid the appellant’s cause for the reasons that follow.

28. In Kunhayammed (supra), the facts were these. After the special leave petition of the State of Kerala which was directed against an appellate judgment and order of the High Court dated 17th December, 1982 was dismissed on 18th July, 1983 by a single line order[24], the State had invoked the review jurisdiction of the High Court in January, 1982 seeking review of the said judgment and order dated 17th December, 1982. A preliminary objection to the maintainability of the review petition was raised before the High Court, which came to be overruled by an order dated 14th December, 1995. The said order also directed the review petition to be posted for hearing on merits. The order dated 14th December, 1995 overruling the preliminary objection was carried to this Court in a special leave petition, on which leave was granted on 16th September, 1996. By an order dated 14th March, 2000, the matter was referred to a three-Judge Bench for decision.

[24] “Special Leave Petition is dismissed on merits.”

29. Kunhayammed (supra) is considered an authority on the doctrine of merger. However, on the facts before the three-Judge Bench, it was held that since the judgment and order of the High Court dated 17th December, 1982 did not merge in the single line unreasoned order of dismissal of the special leave petition (dated 18th July, 1983), the petition for review was maintainable.

30. Turning to Khoday Distilleries (supra), two appeals were under consideration. It is found that in the lead appeal, a petition for review of the judgment and order dated 12th November, 2008 was not entertained by the High Court of Karnataka by its order dated 9th September, 2011 on the ground that a special leave petition against the said judgment and order dated 12th November, 2008 stood dismissed by a single line order[25] of this Court dated 4th December, 2009. The question of law arising for decision was noted in paragraph 8, reading as follows:

“8. The question of law which needs to be determined in the aforesaid circumstances is as to whether the review petition is maintainable before the High Court seeking review of a judgment against which the special leave petition has already been dismissed by this Court.”

[25] “Delay condoned. Special leave petition is dismissed.”

31. After extensively referring to and/or relying on Kunhayammed (supra), the three-Judge Bench summed up the legal position in paragraph 26 as under:

“26. From a cumulative reading of the various judgments, we sum up the legal position as under:

26.1. The conclusions rendered by the three-Judge Bench of this Court in Kunhayammed and summed up in para 44 are affirmed and reiterated.

26.2. We reiterate the conclusions relevant for these cases as under : (Kunhayammed case, SCC p. 384)

‘(iv) An order refusing special leave to appeal may be a nonspeaking order or a speaking one. In either case it does not attract the doctrine of merger. An order refusing special leave to appeal does not stand substituted in place of the order under challenge. All that it means is that the Court was not inclined to exercise its discretion so as to allow the appeal being filed.

(v) If the order refusing leave to appeal is a speaking order i.e. gives reasons for refusing the grant of leave, then the order has two implications. Firstly, the statement of law contained in the order is a declaration of law by the Supreme Court within the meaning of Article 141 of the Constitution. Secondly, other than the declaration of law, whatever is stated in the order are the findings recorded by the Supreme Court which would bind the parties thereto and also the court, tribunal or authority in any proceedings subsequent thereto by way of judicial discipline, the Supreme Court being the Apex Court of the country. But, this does not amount to saying that the order of the court, tribunal or authority below has stood merged in the order of the Supreme Court rejecting the special leave petition or that the order of the Supreme Court is the only order binding as res judicata in subsequent proceedings between the parties.

(vi) Once leave to appeal has been granted and appellate jurisdiction of the Supreme Court has been invoked the order passed in appeal would attract the doctrine of merger; the order may be of reversal, modification or merely affirmation.

(vii) On an appeal having been preferred or a petition seeking leave to appeal having been converted into an appeal before the Supreme Court the jurisdiction of the High Court to entertain a review petition is lost thereafter as provided by sub-rule (1) of Order 47 Rule 1 CPC.’

26.3. Once we hold that the law laid down in Kunhayammed is to be followed, it will not make any difference whether the review petition was filed before the filing of special leave petition or was filed after the dismissal of special leave petition. Such a situation is covered in para 37 of Kunhayammed case.

27. Applying the aforesaid principles, the outcome of these appeals would be as under.

Civil appeal arising out of Special Leave Petition (Civil) No. 490 of 2012

28. In the instant case, since special leave petition was dismissed in limine without giving any reasons, the review petition filed by the appellant in the High Court would be maintainable and should have been decided on merits. Order dated 12-11-2008 passed by the High Court is accordingly set aside and matter is remanded back to the High Court for deciding the review petition on merits. The civil appeal is disposed of accordingly.”

32. In Khoday Distilleries Limited (supra), the order under appeal was clearly in the teeth of the ratio laid down in Kunhayammed (supra) and it was only a matter of time for such erroneous order to be set aside.

33. Since the facts in Kunhayammed (supra) and Khoday Distilleries Limited (supra) were different, there is evidently no consideration of the decision in Upadhyay & Co. (supra) which clinches the issue and assists us in drawing the conclusion we do hereunder.

34. Insofar as the order dated 13th August, 2024 passed in N.F. Railway Vending and Catering Contractors Association Lumding Division (supra) is concerned, the order records developments having taken place subsequent to the order dated 29th July, 2024 which, in the opinion of the Bench, required a further consideration. The order dated 13th August, 2024, for such reason, recalled the earlier order dated 29th July, 2024 and issued notice on the special leave petition as well as on the application for stay together with interim protection. The order dated 13th August, 2024 recalled the order dated 29th July, 2024 whereby hearing was adjourned sine die awaiting the reference made in S. Narahari (supra). No assistance can, thus, be drawn by the appellant from such order.

35. We have no doubt that entertaining a special leave petition in a case of the present nature would be contrary to public policy and can even tantamount to sitting in appeal over the previous order of this Court which has attained finality. The maxim interest reipublicae ut sit finis litium (it is for the public good that there be an end to litigation) would apply in all fours when it is found that proceedings challenging an order were not carried forward by withdrawing the special leave petition and the litigant has returned to the same court after some time mounting a challenge to the self-same order which was earlier under challenge and such challenge had not been pursued. This is a course of action which cannot be justified either in principle or precept.

36. For the foregoing reasons, the preliminary objections to the maintainability of the appeals raised by the respondent succeed.

37. The civil appeals are, consequently, dismissed. Connected applications, if any, stand closed.

38. If so advised, the appellant may pursue his remedy before the appropriate forum in accordance with law.

2025 INSC 1157

SUPREME COURT OF INDIA

DIVISION BENCH

EXECUTIVE TRADING COMPANY PRIVATE LIMITED

Vs.

GROW WELL MERCANTILE PRIVATE LIMITED

( Before : Ahsanuddin Amanullah and S.V.N. Bhatti, JJ. )

Civil Appeal No….of 2025 [@ SLP (C) No. 1134 of 2024]

Decided on : 25-09-2025

A. Civil Procedure Code, 1908 (CPC) — Order 37 — Summary Suits — Procedure — Filing of reply/defence without leave to defend — High Court allowing filing of reply to Summons for Judgment without defendant first applying for leave to defend amounts to procedural deviation from Order 37 Rule 3(4) and 3(5) CPC.

B. Civil Procedure Code, 1908 (CPC) — Order 37 — Summary Suits — Purpose of Summary Suit and Order 37 — Allowing a reply or defence without leave to defend in a summary suit effaces the distinction between a normal suit and a summary suit, undermining the very purpose of Order 37.

C. Civil Procedure Code, 1908 (CPC) — Order 37 Rule 3(4) & 3(5) — Leave to Defend — Plaintiff serves Summons for Judgment, Defendant must apply for leave to defend within ten days by disclosing a genuine and substantial defence. Court decides whether to grant leave.

D. Civil Procedure Code, 1908 (CPC) — Order 37 Rule 3(7) — Condonation of Delay — Court has discretion to condone delay in applying for leave to defend if sufficient cause is shown.

E. Civil Procedure Code, 1908 (CPC) — Order 37 Rule 3 — Procedural Deviation — High Court order allowing filing of reply without defendant seeking leave to defend is procedurally incorrect and unsustainable, goes to the root of the matter, and is liable to be set aside.

F. Civil Procedure Code, 1908 (CPC) — Order 37 — Summary Suits — Setting aside of High Court order should not prejudice pending applications or options available to parties under Order 37.

JUDGMENT

S.V.N. Bhatti, J. – Leave granted.

2. We have heard Advocates Mr. Debesh Panda and Mr. Sanampreet Singh for the parties. The appeal is at the instance of the Plaintiff in Commercial Summary Suit No. 19 of 2020 before the High Court of Judicature at Bombay and challenges the order dated 05.12.2023. To make the narrative brief, the order impugned is excerpted hereunder:

“1. Let the reply to the Summons for Judgment be filed by 20th December, 2023 with a copy to the other side. Rejoinder, if any, be filed by 9th January, 2024 with a copy to the other side.

2. List on 9th January, 2024.”

3. The parties to the civil appeal had business transactions for reasonably good time. The present Commercial Suit is filed to recover the alleged admitted and confirmed total liability of Rs. 2,15,54,383.50/- together with interest at 24% per annum amounting to Rs. 2,38,50,845.00/-.

4. The suit was filed on 15.10.2019 under Order XXXVII of the Civil Procedure Code, 1908 (‘the CPC’). Summons were issued on 15.01.2020, along with the Plaint and Annexures, which have been stated as served on the Defendants on 18.01.2020. On 28.01.2020, the Defendant entered appearance in terms of sub-Rule (3) of Rule 3 of Order XXXVII of the CPC. The Plaintiff filed Summons for Judgment No. 75 of 2021 in Commercial Summary Suit No. 19 of 2020. The Plaintiff alleges that the Summons for Judgment No. 75 of 2021 was served on the Defendant on 11.01.2022. According to the plaintiff, the Defendant ought to have, if advised, filed for leave to defend by disclosing the defence available against the claim in the Summary Suit.

5. Admittedly, instead of filing an Application seeking leave to defend, the Defendant filed an I.A. (L) No. 7771 of 2022 praying for the dismissal of the suit for non-compliance with Section 12A of the Commercial Courts Act. On 08.04.2022, the application was allowed, the parties were referred to mediation, and the Summary Suit was kept in abeyance. The Mediation Report dated 09.02.2023 was filed by the Mediator. The I.A. No. 1353 of 2023 was filed to allow the Plaintiff to amend the plaint and summons for judgment as per the Schedule annexed, and the same was allowed by order dated 29.08.2023. The operative portion reads as follows:

“6. Having heard the learned counsel and having perused the papers and proceedings, the draft amendment as requested by way of praecipe is allowed. Let the amendment to the plane as well as the summons for judgment be carried out within a period of two weeks.

7. Let the amended plane as well as the summons for judgment be served upon the other side within a period of one week thereafter.”

The defendant filed an Application for condoning the delay in applying for leave to defend on 23.01.2024. The said application is still pending before the High Court.

6. By referring to the above chronological undisputed events, Advocate for Plaintiff contends that the step ordered by the High Court, allowing reply to the Summons for Judgment, is procedurally incorrect and unsustainable. The requirement in terms of sub-Rule (5) of Rule 3 of Order XXXVII of the CPC is to file an application seeking leave to file the defence. In the application filed praying for leave, the court decides whether a case for granting leave to defend is made out or not, considering the nature of the recovery. At the present stage, we are not determining whether a case for granting leave is made out or not, but the precise question is whether the court could have permitted filing a reply/defence without even praying for leave, setting out the available defence, etc.

7. To appreciate the procedural objection pointed out by the Plaintiff, the sequence of steps under Order XXXVII Rule 3 sub-Rules (1) to (7) of the CPC is set out as follows:

7.1 On filing the Summary Suit, the plaintiff must serve the defendant with the plaint and annexures, together with the summons.

7.2 The defendant has ten days to enter an appearance, in person or through a pleader, and provide a service address. On the same day, the defendant must notify the plaintiff or its pleader of its appearance.

7.3 The plaintiff then serves a summons for judgment on the defendant in the court-prescribed format, supported by an affidavit verifying the cause of action, the amount claimed, and the belief that the defendant has no defence.

7.4 Thereafter, the defendant has ten days to apply for leave to defend by filing an affidavit disclosing a genuine and substantial defence. The court may grant leave to defend unconditionally or on such terms that may appear to be just.

7.5 The court shall not refuse leave unless the defence is frivolous or vexatious. Further, if the defendant admits to owing part of the amount, it must deposit that amount in court to get the leave to defend.

7.6 If the defendant does not apply for leave or its application seeking leave is refused, the plaintiff is entitled to immediate judgment. If the court grants leave to defend but the defendant fails to comply with any condition or other directions, the plaintiff is also entitled to immediate judgment.

7.7 The court has the discretion to condone any delay in entering an appearance or applying for leave to defend if the defendant shows sufficient cause.

8. Advocate Sanampreet Singh, appearing for the Defendant, contends that the Application seeking condonation of delay is pending. Even if the application is under a wrong provision, the same is not a ground to assume that the Plaintiff is entitled to a decree. Further, the delay stated by the Plaintiff in filing the application is not correct, as it is always available to the Defendant to convince the court either to grant leave or condone the delay. He argues that the delay in filing the application, as stated by the Plaintiff, is factually incorrect.

9. After perusing the record and also the step taken by the High Court in bypassing the requirement of sub-Rules (4) and (5) of Rule 3 of Order XXXVII of the CPC; without much deliberation, we are of the view that the order impugned needs to be interfered with in as much as if a reply or defence is allowed to come on record in a summary suit without the Leave of the Court then the distinction sought to be maintained between a Suit normally instituted and Summary Suit under Order XXXVII of the CPC stands effaced. The procedural deviation goes to the root of the matter. Hence, the order impugned is set aside. The setting aside of the order impugned shall not be understood as foreclosing the options available to the Defendant in the Judgment Summons already issued, or the observations made in the present order shall not prejudice the case of either party.

10. The appeal stands allowed by leaving the option to the parties to pursue remedies in accordance with the steps envisaged in Rule 3 of Order XXXVII of the CPC. There shall be no order as to costs.