2003 (11) TMI 333 - SC - Companies Law

Supreme Court rules MOU not novated under Indian Contract Act, parties must comply with terms

United Bank of India Versus Ramdas Mahadeo Prashad

The Supreme Court allowed the appeals, setting aside the Debts Recovery Appellate Tribunal's judgment. The Court held that the Memorandum of Understanding ... Whether the MOU, entered into between the parties on 18-5-1994 and forwarded by letter dated 20-5-1994, has been acted upon and complied with by the parties? Held that:- Appeal allowed. The respondents did not withdraw the suit filed by them against the United Bank of India, which is the condition precedent stipulated in clause (1) of the MOU. The respondents also did not pay the guarantee liability of Rs. 2.33 lakhs. No compromise petition was filed before an appropriate court. Therefore, by no stretch of imagination it can be said that the terms and conditions stipulated in the MOU had been complied with and acted upon by the parties. Apart from what has been said, subsequent to the MOU there was also a lot of correspondence between the parties by exchanging letters giving offers and counter-offers, as would be revealed in the letters dated 16-6-1994, 23-12-1994, 12-6-1995, 15-6-1995 and 19-6-1995. All these correspondences would go to show that the parties failed to arrive at a consensus even on what were the terms of the MOU. Thus, it is clear that there was no concluded contract nor was there any novation. Issues:- Interpretation of Memorandum of Understanding (MOU) between parties dated 18-5-1994- Compliance with terms of the MOU by the parties- Application of section 62 of the Indian Contract Act regarding novation- Filing of a compromise petition in an appropriate court as per the MOUInterpretation of MOU:The appeals were against the judgment of the Debts Recovery Appellate Tribunal (DRAT) concerning an MOU dated 18-5-1994. The central issue revolved around whether the MOU had been acted upon and complied with by the parties. The Tribunal concluded that the terms of the compromise in the MOU constituted a new contract between the parties. It noted that the terms of the MOU had been adhered to, except for the calculation of interest, and that the bank did not release the title deeds as agreed upon.Compliance with MOU Terms:The MOU outlined specific actions to be taken by the parties, including withdrawing the suit, paying the guarantee liability, and filing a compromise petition. However, the respondents did not withdraw the suit, did not pay the guarantee liability, and did not file a compromise petition as required by the MOU. The subsequent correspondence between the parties indicated a lack of consensus on the terms of the MOU, leading to a failure to reach a concluded contract or novation.Application of Section 62 of Indian Contract Act:The senior advocate contended that the original contract was substituted by the MOU, invoking section 62 of the Indian Contract Act. However, the court found that there was no concluded settlement or novation, and the terms of the MOU were not complied with by the respondents. Therefore, the MOU did not amount to novation of the contract as per section 62 of the Act.Filing of Compromise Petition:It was highlighted that no compromise petition was filed in an appropriate court as required by Order 23 Rule 3 of the Civil Procedure Code. The failure to fulfill this aspect further emphasized the lack of compliance with the terms of the MOU.In conclusion, the Supreme Court allowed the appeals, setting aside the DRAT's judgment. The appeal by the appellant was allowed, while the appeal by the respondents was dismissed. The parties were directed to bear their own costs in the matter.