TaxTMI 
TaxTMI 
2017 (9) TMI 1977
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....entioned in paragraph 6 of the plaint. In absence of any document evidencing such pre-incorporation agreement it has to be assumed that the plaintiffs do not have any cause of action against the defendant No. 1 based on such non-existent pre-incorporation agreement. The Court cannot grant any relief on a mythical hypothetical agreement. 4. Mr. P. Chidambaram, the learned Senior Counsel appearing on behalf of the petitioner submits that the Specific Relief Act, 1963 in Section 15(h) has recognised pre-incorporation agreement. A pre-incorporation agreement must be incorporated in the terms of the actual incorporation of the company. The Memorandum and Articles the Association of the plaintiff No. 1 company do not contain any of the descriptions, discussions and/or representation averred in paragraph 6 of the plaint. Though, the plaint at paragraph 8 refers to MOA and AOA of the plaintiff No. 1, the said documents were not produced along with the plaint. The plaintiff also does not rely upon the said document to assert that the alleged pre-incorporation agreement subsists. Inducing one person not to contract with other may, however, become tortious if unlawful means are used or thr....
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....Shareholders' Agreement are in fact contrary to the pre-incorporation agreement as pleaded in the plaint. 6. Mr. Chidambaram submits that in paragraph 6 of the plaint the plaintiff has essentially pleaded three things namely (i) procurement has to be done by the Arcelor Mittal Companies exclusively through the plaintiff No. 1 company; (ii) this is an agreement in perpetuity; and (iii) there is a negative covenant which prohibits the Arcelor Mittal Companies from dealing directly with the Defendant Nos. 39 to 42 in India. 7. On the contrary, the Shareholders' Agreement in clause 2.9.1 and clause 16 clearly record that it is not an exclusive arrangement and is terminable. 8. It is submitted that a bare reading of the said agreements would clearly show that there is no negative covenant and it provides that in certain cases, the Arcelor Mittal Companies (procuring companies) can resort to direct buying as permitted under Clause 2.15.4. In Clause 28 it is specifically stated that it is the entire agreement between the parties and there can be no reliance on any previous discussions and representations. 9. If the plaintiffs still seek to prove that paragraph 6 is the....
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.... contract presented by Lindsay is not technically satisfactory or commercially competitive. 12. The Shareholders' Agreement is a terminable agreement. The Shareholders' Agreement was terminated twice. It was terminated initially by the Defendant No. 3 by stating so in a petition (being A.P. No. 1034 of 2016) under Section 9 filed by the Defendant No. 3 and again through its letter dated 3rd March, 2017. The learned Senior Counsel has relied upon 13. Indian Oil Corporation Ltd. v. Amritsar Gas Service & Ors, reported at (1991) 1 SCC 533, paragraph 12 to submit that the contract of this nature is terminable. 14. It is submitted that in view of the aforesaid no specific performance in terms of the prayer (a) or (c) of the plaint could be granted against the defendant No. 1. 15. The next submission is that the shareholders' Agreement does not contain any negative covenant. Even the pre-incorporation agreement as alleged in paragraph 6 of the plaint does not exist and is not subsisting. Accordingly there cannot be a negative covenant without an agreement. Mr. Chidambaram has referred to the decision of the Hon'ble Supreme Court in Hardesh Ores Pvt. Ltd. v. He....
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....y identifiable. Secondly, defendant must have knowledge of the existence of the contract. Thirdly, the breach of such contract must be caused by unlawful means. Fourthly, damages were occasioned to the plaintiff due to such breach. A breach of an existing contract is a fundamental requirement for the tort of inducement. The learned Senior Counsel has relied upon Bullen & Leake & Jacob's Precedents of Pleadings, Fourteenth Edition, Vol.2 (2001) paragraphs 51-01 and 51-05 at pages 833 and 834 respectively in this regard. 18. It is submitted that in this case the very first element is not identifiable in the plaint that is to say: which is the agreement/contract of which the tortious interference is alleged by the plaintiffs? 19. The learned Senior Counsel submits that the plaintiffs are inviting the court to invent a hypothetical contract to sustain its claim in the face of non-existence of the pre-incorporation agreement. It is not the case of the plaintiffs in the plaint that defendant No. 1 has procured the breach of any of the procurement purchase orders placed by the Arcelor Mittal Companies on the plaintiff No. 1 or any of the supply purchase orders placed on the defe....
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....7 Chamber Summons (L) No. 809 of 2017 in Suit No. 192 of 2017 at paragraph 8. The Hon'ble Court would not require the plaintiffs to prove the facts which, even if they do, would not entitle the plaintiffs to the relief sought in the suit. In such circumstances, the plaint ought to be rejected under Order VII Rule 11(a). In exercise of the power under Order VII Rule 11 CPC the Court must, if on a meaningful and not formal reading of the plaint, finds it manifestly vexatious and meritless, in the sense of not disclosing a clear right to sue, and if clever drafting has created the illusion of a cause of action, nip it in the bud as held by the Hon'ble Supreme Court in T. Arivandandam V. T.V. Satyapal reported at (1977) 4 SCC 467 at paragraph 5. 25. The objections of the petitioner are thus summarized as: "(i) There is no cause of action against defendant No. 1 based on breach of contract or for specific performance of any contract to which defendant No. 1 is a party. (ii) There is no cause of action based on tortious interference to procure a breach of contract because no existing contract has been breached. (iii) The plaintiffs cannot ask the cou....
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....iterally means "anything that gives authority for an action". Mr. Kapoor submits that in other words the subject or transaction contemplated by the pre-incorporation contract must be such that it can be justified or permitted or necessitated by the terms of incorporation. 29. Mr. Kapoor in this regard has relied upon a decision of the Hon'ble Supreme Court in Jai Narain Parasrampuria (Dead) and Others v. Pushpa Devi Saraf and Others, reported at (2006) 7 SCC 756 Paragraphs 20 to 27 to submit that this right has been recognized in the said decision and, accordingly, it cannot be contended that the terms of the pre-incorporation contract should have been in the articles otherwise the plaint should be held to be demurrable on this point. It is submitted that in Jai Narain (supra) it was held that the expression meant that transaction should not be ultra vires the purposes for which the company was incorporated. In the instant case, both the MOA and the AOA of the company expressly enable the sales and purchases of goods and such transactions went on for nearly two decades. In fact, the record manifests that the buying and selling were indeed warranted by the terms of the incorp....
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....ant Nos. 1 to 38, are comprehensively stated in paragraphs 39 to 44 and 45 of the plaint. 37. Mr. Kapoor in particular has referred to Paragraphs 45(a) to 45(j) regarding the defendant No. 39, Paragraphs 45(k) to 45(2) regarding the defendant No. 40 and Paragraphs 45(x) to 45(dd) regarding the defendant Nos. 41 and 42. 38. Mr. Kapoor refers to Paragraphs 45(dd) of the plaint and submits that a bare reading of the said paragraph and the said sub-paragraphs would show that there is specific reference to pending and outstanding orders that remained to be supplied by the defendant Nos. 39, 41 and 42. Mr. Kapoor has referred to further details and particulars of the orders as mentioned in Schedule B at pages 34 to 36 in G.A. No. 117 of 2017. 39. In order to demonstrate overall involvement of the defendant No. 1 and that the other defendants are acting at the dictates of the said defendants, Mr. Kapoor has referred to Paragraphs 38 and 45(hh) to show that in the said paragraphs the plaintiff has categorically stated that the defendant No. 1 has unlawfully induced or procured the breaches of contracts between the plaintiffs and third parties, namely, defendant No. 39 to defendant....
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....cted in part. In deciding a demurrer of such a kind, the court is not concerned with any defence that a party may have on the merits of the case. It is not the lack of proof but the lack of pleading with which the Court is concerned in deciding an application of this nature is the submission of Mr. Kapoor. In this regard, Mr. Kapoor has relied upon the following decisions:- "(a) Ramesh B Desai & Ors. v. Bipin Vadilal Mehta & Ors. reported at 2006 (5) SCC 638, Paragraphs 14 & 15; (b) Mansukhlal Dhanraj Jain & Ors. v. Eknath Vithal Ogale reported at 1995 (2) SCC 665, Paragraph 5; (c) Roop Lal Sathi v. Nachhattar Singh Gill reported at 1982(3) SCC 487, Paragraph 20; (d) Liverpool & London S.P. & I Association Ltd. v. M V Sea Success I & Anr. reported at 2004 (9) SCC 512, Paragraphs 136 & 146; (e) Kuldeep Singh Pathania v. Bikram Singh Jaryal reported at 2017 (5) SCC 345, Paragraphs 11 & 12." 42. Mr. Kapoor concludes by submitting that the essential and principal relief is against the defendant No. 1 who is at the very epicentre of the dispute and the grievances of the plaintiffs are essentially against him since the other defendants are ....
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....between non-existence of a cause of action and nondisclosure of cause of action has been discussed in State of Orissa v. Kolckna Company Ltd., reported at (1996) 8 SCC 377. 48. Under Order 7 Rule 11(a), the plaint shall be rejected only if the averments in the plaint ex facie do not disclose a cause of action or on a reading thereof the suit appears to be barred under any law. The plea that there is no cause of action for the suit is not same as to say the plaint does not disclose any cause of action, which is a ground for the rejection of the plaint. The correctness or otherwise of the allegations constituting the cause of action is beyond the purview of Clause (a) of Order 7 Rule 11. (See British Airways v. Art Works Export Ltd. & Anr. reported at AIR 1986 Cal 120) 49. This power of rejection of plaint ought to be used only when court is absolutely sure that plaintiff does not have an arguable case at all. 50. The objection as to the rejection of plaint is in the nature of demurrer. 51. In Black's Law dictionary, 10th Edition, Bryan A. Garner, the word "demurrer" has been described as:- "Demurrer. [Law French demorer "to wait or stay"] (16c) A pleading st....
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....ion of the Court has to assume for this purpose that the averments contained in the election petition are true. Reiterating the same principle in Abdulla Bin Ali v. Galappa (1985)2 SCC 54 it was said that there is no denying the fact that the allegations made in the plaint decide the forum and the jurisdiction does not depend upon the defence taken by the defendants in the written statement. In Exphar SA v. Eupharma Laboratories Ltd. (2004) 3 SCC 688 (SCC para 9) it was ruled that where an objection to the jurisdiction is raised by way of demurrer and not at the trial, the objection must proceed on the basis that the facts as pleaded by the initiator of the impugned proceedings are true. The submission in order to succeed must show that granted those facts the court does not have jurisdiction as a matter of law. In this case the decision of the High Court on the point of the jurisdiction was set aside as the High Court had examined the written statement filed by the respondents in which it was claimed that the goods were not at all sold within the territorial jurisdiction of the Delhi High Court and also that Respondent No. 2 did not carry out business within the jurisdiction of th....
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....r Order 7 Rule 11 of the Code, the Court has jurisdiction to reject the plaint where it does not disclose a cause of action, where the relief claimed is undervalued and the valuation is not corrected within the time as fixed by the Court, where insufficient court fee is paid and the additional court fee is not supplied within the period given by the Court, and where the suit appears from the statement in the plaint to be barred by any law. Rejection of the plaint in exercise of the powers under Order 7 Rule 11 of the Code would be on consideration of the principles laid down by this Court. In T. Arivandandam v. T.V. Satyapal reported in (1977) 4 SCC 467 this Court has held that if on a meaningful, not formal reading of the plaint it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, the Court should exercise its power under Order 7 Rule 11 of the Code taking care to see that the ground mentioned therein is fulfilled. In Roop Lal Sathi v. Nachhattar Singh Gill reported in (1982) 3 SCC 487 this Court has held that where the plaint discloses no cause of action, it is obligatory upon the Court to reject the plaint as a whole under Order 7 Rule ....
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.... taken as a whole. At the same time it should be borne in mind that no pedantic approach should be adopted to defeat justice on hair-splitting technicalities." "12. From the aforesaid, it is apparent that the plaint cannot be rejected on the basis of the allegations made by the defendant in his written statement or in an application for rejection of the plaint. The Court has to read the entire plaint as a whole to find out whether it discloses a cause of action and if it does, then the plaint cannot be rejected by the Court exercising the powers under Order 7 Rule 11 of the Code. Essentially, whether the plaint discloses a cause of action, is a question of fact which has to be gathered on the basis of the averments made in the plaint in its entirety taking those averments to be correct. A cause of action is a bundle of facts which are required to be proved for obtaining relief and for the said purpose, the material facts are required to be stated but not the evidence except in certain cases where the pleadings relied on are in regard to misrepresentation, fraud, wilful default, undue influence or of the same nature. So long as the plaint discloses some cause of action whic....
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....& London (supra) Paragraphs 132 and 133 it was stated: "It is trite that a party should not be unnecessarily harassed in a suit. An order refusing to reject a plaint will finally determine his right in terms of Order 7 Rule 11 CPC. The idea underlying Order 7 Rule 11(a) is that when no cause of action is disclosed, the courts will not unnecessarily protract the hearing of a suit. Having regard to the changes in the legislative policy as adumbrated by the amendments carried out in the Code of Civil Procedure, the courts would interpret the provisions in such a manner so as to save expenses, achieve expedition and avoid the court's resources being used up on cases which will serve no useful purpose. A litigation which in the opinion of the court is doomed to fail would not further be allowed to be used as a device to harass a litigant." 58. The said view is reiterated in Kuldeep Singh (supra) where it has been clearly stated that whether a plaint discloses a cause of action is a question of fact and it has to be gathered on the basis of the plain averments taking them to be true. 59. In Bijoy Nagar Tea Company Ltd. v. Narsing Dasgupta & Ors. reported at 2008 (1) CH....
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....complained of in the suit; the second is the injury or grievance resulting from any actual breach or accrual on the part of the opponent; and the third is the relief that is claimed in the suit. A reading of the plaint shows that the defendant No. 1 is at the heart of the plaint. The defendant No. 1 is projected as the main mischief maker. The AM Group of Companies is merely having a hallowed presence surrounding the defendant No. 1. The defendant No. 1 owes its existence to a pre-incorporation agreement which according to the plaintiff has even continued even after the incorporation of the defendant No. 1 and the shareholders agreement. 63. The plaintiffs have set out three different causes of action against the defendant No. 1. 64. The first cause of action appears to be that there is a pre-incorporation agreement between the plaintiffs and the defendant No. 1 which is sought to be breached by the defendant No. 1. This cause of action apparently permeates through the entire body of the plaint in so far as the assertion that the defendant No. 1 all throughout represented and assured that all supplies should be routed through the plaintiff No. 1. 65. The second cause of ac....
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....h of contract for services, established a general liability for intentionally inducing the breach of a contract between the claimant and a third party. The two grounds of liability recognized by the law were knowingly inducing a person "to commit an actionable wrong" and doing an act "not wrongful in so far as he is concerned" but harming a third party "by use of illegal means directed against that third party". (per Lord Watson in Allen v. Flood, (1898) A.C. 1 at 96) In this decision, atypical of its time, upholding the right of a trade union official to persuade workers not to work when he procured no breach of their contracts, the line was drawn between persuading a person not to make a contract and persuading a person to break an existing contract, the former being lawful, the latter unlawful. So, it later became the "leading heresy" to aver that malicious interference with another's trade is per se actionable even when no unlawful means are employed or threatened. (Lord Dunedin in Sorrell v. Smith, (1925) A.C. 700 at 719) Thus, the common law has refused to embrace a tort of "unfair competition", even where one person intends harm to his rival's economic interests. (Wa....
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....ed". 70. The case establishing liability for inducing breach of contract was Lumley v Gye (1853) 2 E&B 216, in which the person procuring a breach of contract was held liable as accessory to the liability of the contracting party. The essential elements of this tort are accordingly as follows:- "(1) Knowledge by the defendant that he is inducing a breach of contract. (2) Intention to procure a breach of contract. (3) Breach of contract. (4) Damage." 71. Mr. Chidambaram has emphatically submitted that unless the plaintiff is able to establish that there is existence of a contract between the plaintiff and the defendant No. 1, there cannot be procuring of breach of a non-existent contract. The learned Senior Counsel has referred to a decision of the Court of Appeal in Middlebrook Mushrooms Ltd. v. T.G.W.U. reported at (1993) I.C.R. 612 and submitted that knowingly to procure or, as it is often put, to induce a third party to break his contract to the damage of the other contracting party without reasonable justification or excuse is a tort. 72. The essential ingredients are the knowledge and intention. An act of inducement is not by itself....
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....which the complaint is made". Because damage to economic expectations is sufficient to found a claim, there need not have been any intention to cause a breach of contract or interfere with contractual rights. (ibid. per Lord Hoffmann at 8). Similarly inducing a breach of contract by a third party with the intention of damaging the claimant can also amount to this tort. (Hadmor Productions Ltd. v Hamilton [1983] 1 A.C. 191 at 228-229). But while the "purpose or intention of inflicting injury on the [claimant]" is an essential element of the tort, it is not necessary to prove that this was the defendant's predominant purpose; it is sufficient that the unlawful act was "in some sense directed against ... or intended to harm the [claimant]". (Lonrho v Fayed [1990] 2 Q.B. 479 at 488-489 per Dillon L.J.). One of the issues addressed by the House of Lords in OBG Ltd. v Allan was the scope of unlawful means for the purposes of this tort. Lord Walker expressed the view that: "the control mechanism must be found ... in the nature of the disruption caused as between the third party and the claimant, by the defendant's wrong (and not the closeness of the connection between the....
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....ed when A either persuades B to break his contract with C or by showing some unlawful acts he indirectly prevents B to perform contract. The origin of this tort is traced to Lumley v. Gye as mentioned earlier. 79. The principles that emerged from the discussions made above are that interference with the subsisting contract may arise in three different ways. It is not restricted simply to procuring a breach of contract but covers interference with the performance of the contract as well, that is to say, preventing or hindering one party from performing his contract even though it may not be a breach of the contract. Direct intervention by the persuasion whether by himself or his agents by words or other acts of communication if are intended to influence to break the contract with C would constitute a cause of action. 80. The second category consists of cases where the intervener does some unlawful acts on the person or property of B which disables him in performing his contract with C. 81. The third category covers cases where intervener persuades the third party to do some unlawful acts which interferes in B's due performance of his contract with C as was intended. ....
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.... v. Flood (1898) A.C. 1; Hadmor Productions Ltd. v. Hamilton (1983) 1 A.C. 191). There is no "tort of wrongfully inducing a person not to enter into a contract" (per Megarry J. in Midland Cold Storage Ltd. v. Steer (1972) Ch. 630 at 645). Interference that falls short of occasioning an actual breach may, however, be covered by the relatively new and emerging tort of interference with business or trade, as to which see further below." 85. In Bullen & Leake & Jacob's Precedents of Pleadings, 18th Edition, the Authors have discussed the necessary ingredients of economic torts in some detail. It is stated, amongst others, that a breach of an existing contract is a fundamental requirement of this tort. Accordingly authorities which appear to expand the tort of inducing breach to include a liability for preventing or hindering performance (e.g. Torquay Hotel v Cousins [1969] 2 Ch. 106), or for violating rights other than those arising pursuant to contract (e.g. Law Debenture Trust Corp v Ural Caspian Oil Corp [1995] Ch. 152 (inducing a breach of a director's fiduciary duty) are now better seen as cases of causing loss by unlawful means. More recent authorities have expressly c....
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....break it, the third party may commit an actionable interference with the contract, against the will of both and without the knowledge of either if with knowledge of the contract, he does an act which if done by one of the parties to it, would have been a breach. Of this type of interference the case of G.W.K. Ltd. (supra) affords a striking example. If, instead of persuading B of unlawful action against him, A brings about the break of the contract between B and C by operating through a third party. A may still be liable to C, provided unlawful means are used. The act of the third party may be against the will of both and without the knowledge of either. It must however be with the knowledge of the contract. But the plaintiff is not obliged to prove that the defendant knew the precise terms of the contract breached; it is enough if the defendant's knowledge is sufficient to entitle the Court to say that he has knowingly or recklessly procured a breach. Proof of malice in the sense of spite or ill-will is unnecessary. It is no justification for the defendant to say that he had an honest doubt whether he was interfering with the plaintiff's contract, or that he acted without ....
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....y Hotel Co. Ltd. v. Cousins [1969] 2 Ch. 106. However, that still leaves him with Temperton v. Russel [1893] 1 Q.B. 715. He accepted that it had not remained unaffected by later authorities. Despite what was said about it in Allen v. Flood [1898] A.C. 1, he said that Quinn v. Leathem [1901] A.C. 495 had restored the actual decision on the case, though not the dicta and reasoning of Lord Esher M.R. As Lord Lindley said in Quinn v. Leathem [1901] A.C. 495, 535, the decision could be rested on conspiracy and unjustifiable interference with one of those who had contracts with the plaintiff, and not on the wrongful motive or intention of the defendants; and see the words of Lord Macnaghten at pp. 508, 509. In Allen v. Flood [1898] A.C. 1, 121, Lord Herschell in emphatic terms rejected Lord Esher's concept of there being only a rather fine distinction between inducing a breach of contract and inducing a person not to enter into a contract: for Lord Herschell thee was a chasm between the two. It seems to me that the actual result in Temperton v. Russell [1893] 1 Q.B. 715 is supportable on the basis of conspiracy, although of course in relation to trade disputes or (No. 2) ind....
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....h must be stated and what matters need not be stated.... The distinction is taken in the very rule itself, between the facts on which the party relies and the evidence to prove those facts. Erie C.J. expressed it in this way. He said that there were facts that might be called the allegata probata, the facts which ought to be proved, and they were different from the evidence which was adduced to prove those facts. And it was upon the expression of opinion of Erie C.J. that Rule 4 [now Rule 7(1)] was drawn. The facts which ought to be stated are the material facts on which the party pleading relies." 91. In the words of Lord Atkinson in Satish Chandra Chatter, since Deceases Now Represented by Bon Behari Chatterji and Ors. v. Kumar Satish Kantha Roy and ors. reported at 28 CWN 327:- "Charges of fraud and collusion like those contained in the plaint in this case must, no doubt, be proved by those who make them proved by established facts or inferences legitimately drawn from those facts taken together as a whole. Suspicions and surmises and conjuncture are not permissible substitutes for those facts or those inferences but that by no means requires that every puzzling arti....
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....of an economic tort, namely, adopting unlawful means so as to interfere with an existing contract with third party with an intention to cause loss thereby resulting damage are present in the plaint. 96. The judgment in Church of Christ Charitable Trust and Educational Charitable Society v. Ponniamman Educational Trust reported at 2012(8) SCC 706, also does not assist the plaintiff. In Church of Christ (supra) it was found that document on which the cause of action based was not produced. The suit was for specific performance to sale an immovable property. The buyer entered into an agreement of sale with the appellant-owner which never culminated in sale and such agreement was terminated. The alleged agreement was entered into by the defendant No. 2 on the basis of a power of attorney. It was found that the power of attorney only authorises certain specified acts but not any act authorising entering into an agreement of sale or to execute sale deed or admit execution before the Registrar. Order 7 Rule 14 of CPC mandates the plaintiff to produce the documents on which the cause of action is based. This document, however, was not disclosed. In such facts and circumstances it was he....
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.... they have sought an injunction restraining the respondents from interfering with their possession and operation. Having not done so, they cannot be permitted to camouflage the real issue and claim an order of injunction without establishing the subsistence of a valid agreement. The Apex Court further held that in the instant suit as well they could have sought a declaration that the agreement stood renewed automatically but such a claim would have been barred by limitation since more than 3 years had elapsed after a categoric denial of their right claiming renewal or automatic renewal by the respondent-defendants. 99. On such consideration, the suit was held to be barred by limitation and, accordingly, dismissed under Order 7 Rule 11(d) of the Code of Civil Procedure. 100. An agreement can be oral. An oral agreement can be enforced. It can be proved by conduct and course of dealings between the parties. 101. It is for the plaintiff to prove at the trial the agreement pleaded in Paragraph 6 of the plaint. 102. Mr. Chidambaram has referred to Section 15(h) of the Specific Relief Act, 1963. The said section relates to pre-incorporation contracts. Where the promoters of co....