2024 (8) TMI 22 - HC - Insolvency and Bankruptcy

Summary judgment denied against non-contracting parties; defendant must deposit Rs.70,00,000 or face judgment for breach of compromise memorandum

The HC dismissed plaintiff's summary judgment application against defendants 2-4, ruling their liability requires trial determination as they were not ... Seeking for summary judgment against the defendants in terms of the suit prayers - plaintiff contends that the defendants have no real prospect of successfully defending the suit claim - Time limitation - HELD THAT:- The Hon'ble Supreme Court in the case of Life Insurance Corporation vs. Sanjeev Builders Private Limited [2017 (10) TMI 1650 - SUPREME COURT] has also framed general guidelines for Courts while adjudicating amendment applications filed under Order VI Rule 17 of C.P.C. wherein it has been held that if a time barred claim is sought to be introduced, in which case, the fact that the claim would be time barred becomes a relevant factor for consideration. Though in the instant case, amendment applications have already been allowed permitting the plaintiff to amend the suit claim and the said order also has not been challenged, this Court is of the considered view that just because the amendment applications are allowed, the plea of limitation taken by the defendants cannot be totally ignored and therefore, the limitation issue can be decided only after trial. The issue of limitation raised by the defendants requires further examination and cannot be decided in this Interlocutory Application as the plea of limitation taken by the defendants cannot be held to be moonshine - the defendants have contended that the plaintiff has flouted the Memorandum of Compromise dated 14.09.2019 by not withdrawing the suit as undertaken by them under the Memorandum of Compromise. Admittedly, it has been established through the plaintiff's through her documentary evidence that the first defendant defaulted in the payment of Rs.70,00,000/- payable to the plaintiff under the Memorandum of Compromise dated 14.09.2019. The cheque issued by the first defendant to the plaintiff for the said amount has also got returned dishonoured for insufficiency of funds. The plaintiff therefore contends that there is no necessity to withdraw the suit as per the Memorandum of Compromise since under the Memorandum of Compromise, the plaintiff is having the right to restore the suit on account of the breach of the Memorandum of Compromise committed by the first defendant. The defendants 2 to 4 though being the directors of the first defendant company, in their individual capacity are not parties to any of the contracts entered into with the plaintiff, which includes the construction contract and the Memorandum of Compromise, which are the basis of this summary judgment application. Through this summary judgment application, the defendants 2 to 4 cannot be made liable. Infact this Court, while dismissing the application filed by the defendants 2 and 3 under Order I Rule 10 of C.P.C. to remove from the array of party defendants, has held that only after trial, the liability of the defendants 2 and 3 can be adjudicated upon. Insofar as the limitation plea is concerned, the first defendant has made out a probable case for defending the suit on the ground that the suit is barred by limitation since the amendment applications seeking amendment of the claim was filed beyond the period of three years from the date of the Memorandum of Compromise. Without expressing any opinion on the merits of the respective contentions, this application is disposed of as against the first defendant by directing the first defendant to deposit to the credit of the suit a sum of Rs.70,00,000/- within a period of two weeks from the date of receipt of a copy of this order, failing which there shall be a summary judgment for a sum of Rs.70,00,000/- in favour of the plaintiff against the first defendant. This application filed against the defendants 2 to 4 is dismissed as the suit claim against the defendants 2 to 4 can be adjudicated only after trial - application dismissed. Issues Involved:1. Maintainability of the summary judgment application.2. Limitation period for filing amendment applications.3. Withdrawal of the suit as per the Memorandum of Compromise.4. Liability of defendants 2 to 4.5. Interest rate applicable on the principal amount.Issue-Wise Detailed Analysis:1. Maintainability of the Summary Judgment Application:The plaintiff sought a summary judgment against the defendants, arguing that the defendants had no real prospect of successfully defending the suit claim. The plaintiff contended that the debt was admitted in the Memorandum of Compromise dated 14.09.2019. The defendants countered that the application was not maintainable due to the plaintiff's failure to withdraw the suit as agreed in the Memorandum of Compromise and the existence of triable issues, including the liability of defendants 2 to 4 and the interest rate applicable.2. Limitation Period for Filing Amendment Applications:The plaintiff filed amendment applications on 24.07.2023, beyond the three-year period from the date of the Memorandum of Compromise (14.09.2019). The plaintiff argued that the limitation period should be extended due to the Supreme Court's order saving the limitation from 15.03.2020 to 28.02.2022. The defendants contended that the amendment applications were time-barred and that the Supreme Court's order did not apply as the limitation period expired after 28.02.2022. The court held that the limitation issue could not be decided in the summary judgment application and required further examination after trial.3. Withdrawal of the Suit as per the Memorandum of Compromise:The plaintiff had agreed to withdraw the suit under the Memorandum of Compromise but had only withdrawn the Company Petition. The defendants argued that the suit had become infructuous due to the plaintiff's failure to withdraw it. The court noted that there was no deadline for withdrawing the suit in the Memorandum of Compromise and that the issue required further examination after trial.4. Liability of Defendants 2 to 4:The defendants 2 to 4 contended that they were not proper and necessary parties to the suit and had sought deletion of their names. The court had previously held that the burden was on the plaintiff to prove allegations against defendants 2 and 3 during trial. The court dismissed the summary judgment application against defendants 2 to 4, stating that their liability could only be adjudicated after trial.5. Interest Rate Applicable on the Principal Amount:The plaintiff claimed interest at 15% per annum, while the Memorandum of Compromise provided for 10% interest if the first defendant defaulted on the payment of Rs.70,00,000/-. The court held that the issue of the applicable interest rate was debatable and required adjudication after trial.Conclusion:The court directed the first defendant to deposit Rs.70,00,000/- within two weeks, failing which a summary judgment for the same amount would be passed in favor of the plaintiff. The application against defendants 2 to 4 was dismissed, and the suit was posted for filing of affidavit of admission/denial of documents on 12.04.2024.