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Cambridge Solutions Ltd. v/s Global Software Ltd & Others

    Application No.339 of 2008, C.S.No.765 of 2007

    Decided On, 30 September 2008

    At, High Court of Judicature at Madras

    By, THE HONOURABLE MR. JUSTICE M. JEYAPAUL

    For the Petitioner : M. abir, R. Sasidharan, Advocates. For the Respondents: R1, A. Somayaji, Senior Counsel, R2, Satish Parasaran, Advocate, R. Krishnamoorthy, Senior Counsel, T.S. Gopalan & Co.



Judgment Text

The first defendant M/s.Cambridge Solutions Limited formerly known as M/s.Scandent Solutions Corporation Limited filed this application seeking rejection of the plaint invoking the provision under Order VII Rule 11 of the Code of Civil Procedure.


2. The applicant/first defendant would contend that the applicant was to pay Rupees 15 crores to the third respondent M/s.DSQ Software Limited on account of the terms of certain assignment. The said consideration was by way of issuing 15 lakh debentures at Rs.100/= each. The applicant and the third respondent also entered into an agreement on 1.8.2008. It transpires that the second respondent instituted O.A.No.505 of 2002 on the file of the fourth respondent for the recovery of Rs.6,65,75,390/=. A joint compromise memo dated 21st March 2003 was filed before the fourth respondent. The liability of the third respondent was fixed at Rs.5,31,55,000/=. The second respondent agreed to receive the same in full and final settlement of its claim. In terms of the said compromise, the third respondent was to deliver 2,75,000/= debentures of the applicant to the second respondent. The third respondent defaulted in complying with the terms of the joint compromise memo. A demand notice was issued by the fifth respondent. By order dated 13th October 2004, the debentures were attached. But, by order dated 12.7.2005, the fifth respondent directed the applicant to issue duplicate debentures. It did not come to light that the first respondent/plaintiff viz., Global Software Limited has purchased the said debentures. The applicant came to know of the proceedings of the Debts Recovery Tribunal only on 13th October 2004 when the order of attachment was passed. The first respondent filed a Miscellaneous Application seeking to implead itself as third respondent in the appeal preferred by the applicant. The said application has been reserved for orders. The order dated 13th October 2004 relates to attachment of debentures and the order dated 12th July 2005 relates to issuance of duplicate debentures. An appeal would lie as against the aforesaid orders before the Debts Recovery Tribunal. The first respondent cannot invoke the jurisdiction of this court having chosen an alternative forum to agitate its rights. If any valuable consideration has been passed between the first and third respondent, it is always open to the first respondent to institute recovery proceedings of the amount paid as against the third respondent. The third respondent cannot, through its associate company viz., the first respondent herein, dislodge a legal decision on the ground of fraud. The first respondent has no locus standi to institute the present suit representing the interest of the third respondent. There is no cause of action available to the first respondent to institute a suit. The suit is not maintainable in law inasmuch as the first respondent cannot invoke the jurisdiction of this court to set aside a lawful order passed by the Debts Recovery Tribunal. Hence, the applicant has sought for rejection of the plaint.


3. Except the first respondent, no other respondent chose to file counter. The first respondent, in its counter, has contended that there is a specific allegation in the plaint that the orders were obtained from the fifth respondent by committing fraud and collusion. A bar of jurisdiction of any court found either in the Recovery of Debts due to Banks and Financial Institutions Act, 1996 (RDB Act) or the SARFAESI Act, 2002 would not apply to a suit where the actions of the banks and other parties are assailed as fraudulent. The claim of collusion is obviously made only to escape the liability in the suit. The first respondent is entitled to the claim on debentures even without registration. The orders passed by the fifth respondent is a nullity having been tainted by fraud. No case has been made out for rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure. Therefore, the first respondent would submit that the application is liable to be rejected.


4. Learned Senior Counsel appearing for the applicant/first defendant would submit that the compromise decree passed by the Debts Recovery Tribunal was not under challenge. The first respondent/plaintiff has chosen to attack only the implementation of the order of attachment and the direction to issue duplicate debentures. The first respondent Company is a related Company of the third respondent. Therefore, we cannot easily presume that the entire transaction that transpired before the Debts Recovery Tribunal was known to the third respondent Company. The third respondent never disclosed the transfer of debentures to the applicant. Therefore, collusive suit has been laid to blackmail the applicant. The applicant cannot be penalised for the compliance of the directions of the Tribunal. The first respondent has already approached the Debts Recovery Tribunal seeking the very same relief. Parallel proceedings initiated by the applicant before this court is a sheer misuse of process of court. The particulars of fraud have not been thoroughly pleaded as mandated under Order VI Rule 4 of the Code of Civil Procedure. As per Order XXIII Rule 3A of the Code of Civil Procedure, no suit will lie on the ground of unlawful compromise. Order 35 of the SURFAESI Act debars the civil court from entertaining suit of this nature. No appeal also will lie to the Appellate Tribunal as against the order passed with the consent of the parties as per section 20(2) of the Recovery of Debts Due to Banks and Financial Institutions (RDB) Act, 1993. The third respondent is instrumental to the initiation of present proceedings by the applicant. As per section 30(1) of the RDB Act, any aggrieved person by the order of the Recovery Officer may prefer an appeal to the Tribunal. Therefore, it is not as if the first and third respondents are remediless under the RDB Act. Neither the applicant nor the second respondent was aware of the alleged transfer of debentures by the third respondent to the first respondent. There is no cause of action for laying the suit on the ground of fraudulent transaction which culminated in a decree by consent.


5. Learned counsel appearing for the second respondent Bank would submit that the debentures were found registered only in the name of the third respondent. The first respondent being the related Concern of the third respondent has been projected as though there was a real transaction of transfer of debentures by the third respondent to the first respondent. Therefore, the collusive suit is liable to be dismissed, he would submit.


6. Learned Senior Counsel appearing for the first respondent would vehemently submit that the attachment has been made only with respect to exact debentures transferred by the third respondent to the first respondent. The Recovery Officer has no authority to give such a direction to issue duplicate debentures when it is nobody's case that the debentures were lost. It is to be noted that the first respondent is a stranger and the balance sheet produced by the first respondent would go to show that the first respondent has got transfer of debentures from the third respondent. Without any application of mind, the debentures belonging to a third party was attached by the fifth respondent. If at all, the third respondent had refused to part with the original debenture certificates as per the direction and also as per the undertaking given by the third respondent, coercive steps should have been taken by the fifth respondent. When fraud is alleged in obtaining a consent decree, the civil court has got jurisdiction to decide such an allegation. The question whether there was any collusion between the third respondent and the first respondent can be gone into only during the course of trial. But, such a plea taken by the applicant cannot be entertained while deciding an application under Order VII Rule 11 of the Code of Civil Procedure.


7. It is found that on 1.8.2002, an agreement was entered into between the applicant and the third respondent whereby debentures for a value of Rs.15 crores were issued to the third respondent. On 21.3.2003, the second respondent and the third respondent have entered into a joint compromise before the Debts Recovery Tribunal in the proceedings initiated by the second respondent for recovery of dues from the third respondent. The first respondent has produced bank statements evidencing the advances made by the first respondent to the third respondent in the month of April 2003. The resolution passed by the first respondent on 23.4.2003 would go to show that it decided to acquire Rs.6,25,000 debentures from the third respondent at a discounted rate of Rs.90/= per debenture out of the total of 15,00,000 debentures purchased by the third respondent from the applicant. On 13.10.2004, the third respondent made a in compliance with the terms of the compromise it entered into with the second respondent before the Debts Recovery Tribunal and as a result of which as per the request of the second respondent, the very same 6,25,000 debentures bearing distinctive numbers transferred by the third respondent to the first respondent were attached by the fifth respondent. On 11.7.2005, it appears that the second respondent filed a memo before the Recovery Officer, the fifth respondent seeking a direction to the third respondent to surrender the attached debentures. It has also prayed for a direction to the applicant to issue duplicate debentures within 15 days on failure of the third respondent to surrender the attached debentures. The fifth respondent has passed an order on the next day viz., 12.7.2005 for issuance of duplicate debentures without any notice to the third respondent. Only on being informed by the Company called Mercury Fund Management Company Limited which clinched a deal with the first respondent to purchase the debentures available with it the first respondent has come to know that the Debts Recovery Tribunal had already attached the debentures.


8. It is to be noted that though fifteen days time was granted to the third respondent to surrender the attached debentures, quite unfortunately, the Recovery Officer has chosen to pass yet another order the next day itself directing the applicant to issue duplicate debentures. As rightly pointed out by the learned counsel appearing for the first respondent, it is nobody's case that the debentures were lost. It is also found that the third respondent was not given any notice while an order of issuance of duplicate debentures was passed by the Recovery Officer. If at all the third defendant has not obliged by surrendering the attached debentures, coercive steps should have been taken by the Recovery Officer. Prima face it has been shown by the first respondent that an order has been passed hurriedly by the Recovery Officer without issuing notice to the third respondent and also without waiting for completion of the 15 days time he has already given to the third respondent.


9. The statement of account and the balance sheet produced by the first respondent would go to show that the first respondent has acquired 6,25,000 debentures from the third respondent for the consideration of the loan amount it had advanced to the third respondent. It is also found that the first respondent has been shown as the related Company of the third respondent. Whether there was actually any collusion between the third respondent and the first respondent can be found out only during the course of trial of the case. But, definitely, that is not a ground for rejecting the plaint invoking the provision under Order VII Rule 11 of the Code of Civil Procedure.


10. The first respondent was not a party before the Debts Recovery Tribunal. It is not concerned with the compromise decree passed by the Debts Recovery Tribunal. It has rightly challenged the implementation of the order of attachment and the direction issued by the Recovery Officer to issue duplicate debentures as such proceedings affect its interest. It is true that only as per the directions of the Recovery Officer, duplicate debenture certificates were issued by the applicant. It is not the scrupulous compliance of the direction by the applicant that is under challenge before the court. That there had been a collusive action and fraud has been played upon to knock away the rights of the third respondent is the gravamen of charge of the first respondent.


11. It is true that the first respondent has approached the Debts Recovery Tribunal seeking almost similar relief. It has been held in the authority in R.S.VIJAYAM v. SRINIVASA (AIR 1956 MADRAS 301) that where a man is entitled to one or two consistent rights and he has with full knowledge done an unequivocal act indicating his choice of the one he cannot afterwards pursue the other which after the first choice is, by reason of the inconsistency, no longer open to him. In the present case, it is found that the first respondent has alleged that fraud has been played in implementation of the order of attachment and issuance of a duplicate debentures. Such an allegation can be gone into only by a civil court and not by the Debts Recovery Tribunal. Therefore, the proceedings pending before the Debts Recovery Tribunal seeking the very same relief cannot be a ground for rejection of the plaint which has been laid before the competent court to adjudicate upon the allegation of fraud.


12. Order VI Rule 4 of the Code of Civil Procedure provides that in a case where a party pleads fraud, particulars with regard to which shall be stated in the pleading. It is not as if a bald allegation has been made in the plaint as regards the charge of fraud. There is an averment as to the fraud alleged to have been committed by the parties. Further, the particulars with respect to the order of attachment and the direction to issue duplicate debentures are furnished with details by the first respondent in the plaint.


13. The Supreme Court in I.T.C. LTD. v. DEBTS RECOVERY APPELLATE TRIBUNAL (AIR 1998 SUPREME COURT 634) has held that when there is no sufficient allegation of forged or fraudulent documents made in the plaint, the plaint can be rejected invoking Order VII Rule 11 of the Code of Civil Procedure. That was a case where an allegation of non-supply of goods by the sellers to the buyers was classified as fraud by the plaintiff in that suit. In other words, a breach of contract was projected before the civil court as a classical fraud. In such circumstances, in the aforesaid case, the Supreme Court was pleased to hold that the plaint can be rejected invoking Order VII Rule 11 of the Code of Civil Procedure. Therefore, the above ratio does not apply to the facts and circumstances of the instant case.


14. With respect to the debentures, there is no prescribed mode of transfer under the Transfer of Property Act. The first respondent has shown prima facie that the debentures stood transferred to it. A Division Bench of this court in SUBRAMANIAM,S.V. v. CYPRESS SEMICONDUCTOR TECHNOLOGY INDIA PRIVATE LIMITED (DB) (2008 (1) CTC 471) has held that no appeal would lie as against the order passed by the Debts Recovery Tribunal with the consent of the parties, but, suit can be laid on the Original Side of the High Court to declare the order passed by the Debts Recovery Tribunal as null and void on the ground that fraud has been played by the parties to obtain orders from the Debts Recovery Tribunal.


15. As per Order XXIII Rule 3A of the Code of Civil Procedure, no suit shall lie to set aside a decree on the ground that the compromise, on which the decree is based, was not lawful. Firstly, the decree of compromise was not sought to be set aside by the first respondent. Secondly, the relief has been sought on the ground that a decree has been obtained unlawfully. There is no bar for laying a suit on the ground that a fraud has been committed to deprive a person of his valuable civil right.


16. Section 34 of the SARFAESI Act debars the civil court from entertaining any suit in respect of any matter which falls within the jurisdiction of the Debts Recovery Tribunal or the Appellate Tribunal as the case may be. As already pointed out by this court, as regards the allegation of fraud in obtaining certain orders depriving the valuable right of a third party, it is only the civil court which has got jurisdiction to deal with it. Such an issue falls outside the pur

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view of the Debts Recovery Tribunal or the Appellate Tribunal. 17. Section 20(2) of the RDB Act debars preference of any appeal before the Appellate Tribunal from an order made by a Debts Recovery Tribunal with the consent of the parties. As already pointed out, this is not a suit to set aside the order passed by the Tribunal. The first respondent challenges only the implementation of the order of attachment and the direction passed by the fifth respondent to issue duplicate debentures. Therefore, the aforesaid provision does not apply to the facts of this case. 18. True it is that any person aggrieved by an order of the Recovery Officer made under the RDB Act may prefer an appeal to the Debts Recovery Tribunal within thirty days from the date on which a copy of the order was issued to him. The first respondent is an aggrieved party to the aforesaid order. But, its grievance is not against a compromise decree passed by the Tribunal, but, as against the implementation of the order of attachment and the direction to issue duplicate debentures on the ground that fraud has been played to knock away his valuable civil rights. Appeal before the Tribunal as against the order of the Recovery Officer on the aforesaid set of facts does not arise. The first respondent has rightly approached this court seeking the prayer as detailed above. Further, only during the course of trial, the court can determine whether any fraud has been committed in obtaining orders from the Tribunal as well as from the Recovery Officer. 19. In the above facts and circumstances, this court holds that sufficient cause of action has been pleaded in the cause of action paragraph in the plaint and that the suit is not barred by law. The application, therefore, deserves dismissal and accordingly, it stands dismissed.
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