TaxTMI 
TaxTMI 
2026 (8) TMI 1452
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.... the present suit inter-alia for recovery of sum of Rs.339.57 crores as on 28 February 2023 alongwith interest arising out of 5393 claims submitted by the investors in pursuance of declaration of Defendant No. 1 being a defaulter in terms of Bye-law No. 1(a) of Chapter-12 of Bye-laws of NSEL and consequent upon expulsion of Defendant No. 1 under Rules 1 and 2 of Chapter-IV of the Rules of NSEL. 3) Plaintiff is a leading Stock Exchange of India. Defendant No. 1 is an incorporated entity and had been a trading member registered with NSEL in the Capital Market (CM) and Futures & Option (F&O) segments since July 2000 and in Currency Derivatives (CD) segment since October 2008. Defendant No. 1 had also been a self-clearing member of CM segment and self-clearing member of F & O segment. Defendant Nos.2 to 5 are Directors of Defendant No. 1. According to the Plaintiff, Defendant No. 1 executed various trades on behalf of its investors. During the course of regular inspection across all segments of trading in the month of March 2018, various irregularities in the books and records of Defendant No. 1 were noticed leading to issuance of show cause notice dated 9 November 2018 to Defendant....
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....notice dated 9 May 2019, Plaintiff received total number of 5393 claims from the investors aggregating to Rs.339,57,00,000/-. Plaintiff has accordingly filed the present Suit for recovery of amount of Rs. 339,57,00,000/- from the Defendants. 5) On 31 March 2023, this Court granted leave under Order 2 Rule 2 of the Code. Thereafter, leave under Clause 12 of the Letters Patent was granted. On 8 February 2024, this Court has passed ad-interim order granting relief in terms of prayer clauses (a), (b) and (f) of Interim Application for temporary injunction. In the above background, Defendants Nos. 1 to 3 have filed the present application seeking rejection of plaint under Order 7 Rule 11 of the Code for failure to comply with mandatory pre-litigation mediation as provided under Section 12A of the CC Act. Plaintiff has filed affidavit-in-reply opposing the Interim Application to which Defendant Nos. 1 to 3 have filed rejoinder. 6) Mr. Vaishnav, the learned counsel appearing for the Applicant submits that the Plaintiff has instituted the present suit without exhausting the remedy of pre-litigation mediation under Section 12A of the CC Act. Relying on judgment of the Apex Court in Pa....
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...., after delay of 4.5. years. That therefore Plaintiff could have awaited completion of pre-litigation mediation period of 3 months contemplated under Section 12A of the CC Act. He submits that holistic reading of the plaint shows that circumstances averred in the plaint were in the knowledge of the Plaintiff since December 2018. That Plaintiff had issued notice dated 9 May 2019 prescribing period of 3 months for lodging of claims. That SEBI has already directed Defendants to provide inventory of its assets and investments and has also restrained them from dealing with/disposing off their assets. That therefore there was no urgency to seek any interim relief in the facts and circumstances of the present case. Mr. Vaishnav accordingly prays that the Interim Application be made absolute in terms of the prayers made therein by rejecting the plaint under Order 7 Rule 11 of the Code. 9) Dr. Saraf, the learned Senior Advocate appearing for the Plaintiff opposes the Application submitting that the present suit contemplates urgent interim reliefs and that therefore the requirement of exhausting the remedy of pre-litigation is inapplicable to the facts and circumstances of the present cas....
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.... and Ors. 2022 SCC Online Bom 4752 and Paramvir Developers Pvt. Ltd. Versus. IIFL Finance Ltd. & Ors. Order dated 4.4.2026 passed in IA-4596 of 2025 in COMS-126 Of 2025. Dr. Saraf accordingly prays for dismissal of the application. 11) Rival contentions urged on behalf of the parties now fall for my consideration. 12) Defendant Nos. 1 to 3 have sought rejection of plaint under Order 7 Rule 11 of the Code on account of failure on the part of the Plaintiff to comply with mandatory pre-litigation mediation as provided under Section 12A of the CC Act. Under Section 12A, a suit, which does not contemplate any urgent interim relief, cannot be instituted unless the Plaintiff exhausts the remedy of pre-litigation mediation. Section 12A of the CC Act provides thus: 12A. Pre-litigation Mediation and Settlement. (1) A suit, which does not contemplate any urgent interim relief under this Act, shall not be instituted unless the plaintiff exhausts the remedy of pre-litigation mediation in accordance with such manner and procedure as may be prescribed by rules made by the Central Government. (2) For the purposes of pre-litigation mediation, the Central Government ....
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.... CC Act. The facts and circumstances of the case have to be considered holistically from the standpoint of the plaintiff. Non-grant of interim relief at the ad-interim stage, when the plaint is taken up for registration/admission and examination, will not justify dismissal of the commercial suit under Order VII, Rule 11 of the Code; at times, interim relief is granted after issuance of notice. Nor can the suit be dismissed under Order VII, Rule 11 of the Code, because the interim relief, post the arguments, is denied on merits and on examination of the three principles, namely, (i) prima facie case, (ii) irreparable harm and injury, and (iii) balance of convenience. The fact that the court issued notice and/or granted interim stay may indicate that the court is inclined to entertain the plaint. 11. Having stated so, it is difficult to agree with the proposition that the plaintiff has the absolute choice and right to paralyze Section 12A of the CC Act by making a prayer for urgent interim relief. Camouflage and guise to bypass the statutory mandate of pre-litigation mediation should be checked when deception and falsity is apparent or est....
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.... Even if the urgent interim relief ultimately comes to be denied, the suit of the Plaintiff may be proceeded with without compliance with Section 12A if the test for "urgent interim relief" is satisfied notwithstanding the actual outcome on merits. i. Suits instituted without complying with Section 12A of the 2015 Act prior to 20.08.2022 cannot be rejected Under Order VII Rule 11 on the ground of non-compliance with Section 12A unless they fall within the exceptions stipulated in paragraph 113.2 and 113.3 of the decision in Patil Automation (supra). j. In suits instituted without complying with Section 12A of the 2015 Act prior to 20.08.2022 which are pending adjudication before the trial court, the court shall keep the suit in abeyance and refer the parties to time-bound mediation in accordance with Section 12A of the 2015 Act if an objection is raised by the Defendant by filing an application Under Order VII Rule 11, or in cases where any of the parties expresses an intent to resolve the dispute by mediation. (emphasis added) 16) Thus, as held by the Apex Court in Dhanbad Fuels Private Limited, the test for 'urgent interim relief ' is that th....
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....tigation mediation should be checked when deception and falsity is apparent or established; d) Whether the suit genuinely contemplates urgent interim relief is to be ascertained on a holistic reading of the plaint and by examining the nature and subject matter of the suit and the cause of action; e) The facts and circumstances of the case have to be considered holistically from the standpoint of the plaintiff. f) 'Contemplation' does not mean an instant immediacy but the prejudice and irreparable loss and injury that the plaintiff is likely to suffer, if the plaintiff is made to wait for pre-litigation mediation; g) The urgency has to be demonstrated to be imminent, disclosing a real and genuine apprehension with detailed facts and particulars. Plaint must disclose that if urgent relief is not granted, grave prejudice and irreparable harm would be caused; h) Urgency contemplated should neither be speculative or presumptive, but must be anchored in specific factual predicates, discernible ex-facie from the pleadings, cause of action and also the conduct of the Plaintiff before institution of the suit. Conduct of proceedings by the Plainti....
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....or otherwise dealing in securities and from associating with securities in any manner. SEBI has also directed freezing of all holdings of Defendant No. 1 in addition to imposition of penalties of Rs.2 crores Rs.1 crore and Rs.75 lakhs on Defendant Nos. 1 to 3 respectively. 21) Plaintiff had issued a public notice on 9 May 2019 calling upon clients/constituents of Defendant No. 1 to lodge claims in the prescribed format within 3 months. Plaintiffs received as many as 5393 claims from investors as on 28 February 2023 aggregating to amount of Rs.339.57 crores. This is how the present suit is filed for recovery of amount of Rs. 339.57 crores from the Defendants alongwith interest for the purpose of reimbursing the claims of the investors. The Suit is thus filed for the purpose of protecting the interests of investors who are clients of Defendant No. 1 and who have apparently lost monies/securities due to actions of the Defendants. This is the broad frame of the Suit. Since rejection of plaint is not sought on the ground of absence of disclosure of cause of action, it is not necessary to make a detailed reference to averments made in the plaint. 22) Since rejection of plaint is so....
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.... been given to the defendants to give their disclosures. It is brought to the notice of this Court that although the said order has been challenged, there is no stay operating in respect of the said order. 4. This Court is of the opinion that while an opportunity can be granted to the defendants to file reply affidavit in the present application, in the light of the order dated 30.06.2022 passed by SEBI and the material brought to the notice of this Court in the present proceeding, ad-interim order can be granted in favour of the plaintiff. 5. It is to be noted that defendant Nos.4 and 5 are also the directors of defendant No. 1-Company and therefore, ad-interim reliefs ought to operate against them also. 6. In view of the above, there shall be ad-interim reliefs in terms of prayer clauses (a), (b) and (f), which read as follows: "(a) this Hon'ble Court may be pleased to direct the Defendant No. 1 to disclose on oath by filing an Affidavit (A) its financial returns for the last three years; (B) certified statements of bank accounts for the last one year; (C) a list of all gross block fixed assets with complete particula....
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....is Hon'ble Court may be pleased to restrain the Defendants, their servants, agents, assigns, directors, officials or any person/s acting or claiming through or under it, by a temporary order and injunction of this Hon'ble Court, from in any manner transferring, alienating, selling, disposing of and/or dealing with and/or parting with possession and/or encumbering or creating any third party, right, title and interest in all assets, movable and immovable, tangible and intangible, securities, shares, debentures, investments owned by the Defendants and/or kept or diverted to any other connected entity, including the assets disclosed on oath by the Defendants;" 7. Reply affidavit on behalf of the defendants be filed within three weeks from today. The defendants shall give necessary disclosures, as per prayer clauses (a) and (b), in the reply affidavit itself. 8. Rejoinder affidavit, if any, be filed within two weeks thereafter. 9. List the application for further consideration on 18.03.2024. 10. The other pending applications shall also be taken up for consideration on the next date of listing. 11. The defendants are permitted to file their ....
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.... Order 7 Rule 11 of the Code. In Vistra ITCL India Ltd. a similar contention was sought to be raised which has been repealed by this Court by observing in para-16 and 19 of the judgment as under : 16. Thus, I do not find any substance in the arguments raised on behalf of the applicants that the mere grant of adinterim relief would not mean that urgent interim relief was not contemplated in the suit on the date of filing of the suit. This court has granted ad-interim relief by considering the averments and the urgency of interim relief as on the date of filing of the suit. Thus, in the present case, it cannot be said that the interim relief application is filed only to bypass the mandatory provision under Section 12-A of the said Act. 19. This court, in the decision of Kaulchand H. Jogani, held that the proper course would be to assess whether there are elements which prima facie indicate that the suit may contemplate urgent interim relief, irrespective of the fact whether the plaintiff eventually succeeds in getting the interim relief. In the present case, though the application for interim relief is still pending, this court, after considering the averments in th....
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....nt of Pre-Institution Mediation can be dispensed with, when the Commercial Suit in question contemplates urgent interim relief. Mr. Kamat has taken me through the Plaint and pointed out from paragraph 22 onwards the case pleaded necessitating urgent reliefs. I did not hear Ms. Rastogi even attempting to deny any of this. 9. In my view, on a plain reading of the Plaint as a whole, the same makes clear that the Suit is one which contemplates urgent reliefs. This is more so in the context of the most grave and serious findings of SEBI against Defendant Nos. 1 to 3. These findings have admittedly not been challenged and are today final. In this factual backdrop, I find that it would be wholly unconscionable for a party, who has accepted findings of fraud to use Section 12A as a shield to resist the grant of interim relief. Also, Ms. Rastogi's contention that the Suit was filed after one year from the date of SEBI's order would not ipso facto mean that the Suit does not contemplate urgent reliefs. Furthermore, given the fact that Ms. Rastogi has chosen to proceed on the basis of a demurrer, it was thus not upon her to deny what has been pleaded in the Plaint. 28) The suit is....